Bankruptcy is rarely the first choice for Maryland residents. Unfortunately, there are situations in which people have no other options available. There exist several factors that determine when it’s the right time to file for bankruptcy protection.
Failed negotiations
Many financial experts recommend that people try to negotiate with some or all of their creditors. Unfortunately, some creditors aren’t willing to negotiate. When negotiations fail, many people have no choice but to file for bankruptcy.
Liabilities outweigh assets
The term “servicing debt” refers to an individual’s ability to make the minimum monthly payments on their debts. When a person’s debts exceed their assets, they can’t service their debt, which makes bankruptcy a viable option.
Hypothetically, assume that an individual owes $500,000 to the bank that gave them a mortgage. Also, assume that their monthly mortgage payment is $4,000. If they only generate $2,000 per month in income and have an additional $25,000 in assets, they will run out of money within a year, making bankruptcy their only option.
Falling behind on your mortgage
People who fall behind on their monthly mortgage payments often choose bankruptcy as a way to protect themselves from foreclosure. Chapter 13 bankruptcy allows you to keep your home even if you’re behind on payments. Chapter 7 bankruptcy discharges other types of debt, making it easier to keep up with your monthly mortgage payments.
Negative consequences of bankruptcy
There are some negative consequences associated with bankruptcy. First, bankruptcy stays on your credit report for seven years, making it hard to receive any type of credit. You may also lose property other than your primary residence.
In addition to the financial consequences, experts report that many people who file for bankruptcy struggle with psychological ramifications. This is why bankruptcy is rarely anyone’s first choice, but it can become their only reasonable option.