Financial struggles can happen to anyone at any time. Job loss, medical expenses, divorce or just the rising cost of living can quickly turn your monthly expenses into unmanageable debt.
Many people try to avoid filing for bankruptcy as long as possible. However, sometimes waiting for things to get better only makes things worse. Recognizing the warning signs early can help you determine whether bankruptcy is the most practical solution for your situation.
1. You are relying on credit cards to cover basic living expenses
It’s not unusual for some people to use their credit cards to cover necessities such as groceries or utilities. Their credit card may offer perks such as airplane miles or cash back. Each month, they make one payment and pay off the balance.
But one of the clearest signs of financial distress is using credit cards to cover expenses because your monthly income no longer covers basic living costs, and the credit cards are filling the gap. The debt grows quickly and soon becomes impossible to repay.
2. Your debt continues to grow despite regular payments
You may be making minimum payments on credit cards and loans, but your total debt is barely decreasing. High interest rates can cause balances to grow even though you are consistently paying each month. Rather than reducing the principal, your payments mainly go toward interest, which is another sign that the debt has become unmanageable.
3. You’re facing collection calls
The sound of the phone ringing can cause enormous stress because, many times, the voice on the other end is from a collection agency. In some cases, creditors may escalate the situation by filing lawsuits to collect what they are owed.
A successful lawsuit could lead to wage garnishment, which means you now have even less income to cover your other expenses.
4. You have little or no savings
Many households are living paycheck to paycheck with no financial safety net. If an unexpected expense, such as a car repair or medical emergency, would force you further into debt, it may be a sign that your finances are already stretched beyond their limits.
Bankruptcy is a legal tool for people with unmanageable debt who need a fresh financial start. However, there are certain requirements that determine what type of bankruptcy you are eligible for. A legal professional can evaluate your situation and guide you through the process. You may believe that bankruptcy is a last resort, but it’s actually the first step towards financial relief.