By Paula Langguth Ryan

PaulaRyan[at]artofabundance.com
www.newcreditafterbankruptcy.com

Now that the bankruptcy reform bill has become the new bankruptcy law, many experts believe financially-strapped consumers will rush to their local bankruptcy court to file before the bill becomes law. This raises the question: Is bankruptcy right for you if you're struggling to make ends meet each month?

The answer isn't always clear cut. In fact, depending on how old your debts are, your payment history and your personal situation, bankruptcy may actually hurt you more than doing nothing.

If you haven't paid anything on your outstanding debts in four or five years, and there's no chance you're going to be able to pay anything on them in the next few years, you'll have a clean slate in two to three years when those debts fall off your credit report.

Compare that to having a bankruptcy listed on your credit report for another 10 years. Suddenly bankruptcy doesn't look like your best option, unless you need to get a car or move before the old debts hit the seven year mark and are removed from your credit reports.

Many people wait too long to declare bankruptcy until they've literally given away everything to creditors. At my debt-busting workshops, I share some all-too-familiar horror stories.

One man was arrested after a seven-month bank-robbing spree. His family had a fire in their apartment and had relocated to a hotel for seven months. With most of their income going to pay creditors, he robbed a bank every month, demanding only enough to pay his monthly hotel bill.

Another family of five was paying their creditors so much money each month they only had $50 left for food. After one child died from malnourishment, Social Services put the other two children in foster care and threw the parents in jail for child neglect.

Warning Signs That It Is Time to Declare Bankruptcy

Any one of these warning signs is a strong indicator that it may be time to declare bankruptcy:

1: You've cut back on every essential and paying your creditors causes you to fall behind on your essential payments, such as your mortgage/rent, car payment, insurance or utilities.

2: You are losing sleep, constantly arguing with your spouse, considering divorce or contemplating suicide because of financial pressures.

3: You are considering doing something illegal, or thinking of pursuing shady credit repair strategies, in order to relieve the pressure of dealing with your creditors.

4: You are jeopardizing your family's health, nourishment or home in order to pay creditors.

If you identify with one of these warning signs, schedule a free consultation with a bankruptcy attorney and explore your options.

It's called the Bankruptcy Protection Act for a reason: to give people a fresh start, to help you get a clean slate.

If bankruptcy is your best option, promise me you won't immediately jump at new credit offers, as so many people do. Your absolute best strategy?

Avoid getting any new credit for one year while you develop new financial strategies in your life. Or, if you are looking to reclaim your credit-worthiness sooner, get a free copy of my Do's and Don'ts of Bouncing Back From Bankruptcy tipsheet at www.newcreditafterbankruptcy.com.

It takes more than becoming debt free to break the debt cycle. You have to change the attitudes and habits that got you into debt in the first place. Consumers who do that have a much better chance of having a secure financial future.

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Paula Langguth Ryan was the only consumer to testify before the National Bankruptcy Review Commission. Ryan is the author of Bounce Back From Bankruptcy and Giving Thanks: The Art of Tithing (Pellingham Casper). For a free subscription to Paula's monthly electronic newsletter, visit www.newcreditafterbankruptcy.com

Published - December 2005