If you're awash in debt, a personal bankruptcy filing may seem like the only option. However, filing personal bankruptcy should be an absolute last resort, not the first answer to your financial difficulties, especially because you probably do not know where you are really at with your finances, and also because you have likely not thoroughly checked out all of your options.
That's not to say you can't do a personal bankruptcy filing once you've exhausted all of your options, but knowing that you have that as a sort of "safety net" can give you peace of mind while you try to work out other plans to pay off debt.
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What you should do before you think about a personal bankruptcy filing?
As stated previously, you should exhaust all of your other options completely, but what does that mean, exactly? It means that you handle your debts as responsibly as possible while still putting your own absolute needs first. Let's take a closer look at how you do this.
Take an accounting
Before you do anything, sit down and take a full accounting of ALL of your debts, including credit cards, student loans, car loans, your mortgage, any money you owe relatives and friends, and so on. Add it up and see what you've got. Include everything, even the things that are not past due, and you might be surprised at your list when you get done. Don't forget your newspaper subscription, your cable tv bill, your Internet bill, your electric, gas, and water, trash pickup, etc. It all adds up.
Now, sit down and figure out how much you've got coming in. Include child support payments, income from your job, etc.
Sit down and figure out a budget
Sit down and figure out a basic budget for everything you need every month. That's "need," not want. That includes things like utilities, your car payment, student loan payments, the mortgage or rent, food, and so on. DON'T include things like credit card debt or other unsecured debt right now. We're just trying to get a basic accounting of absolute basic needs right now.
Compare your budget to your income
This is probably the hardest part. Now that you've got your budget set up, take a look at it and see how much you've got left over every month. And incidentally, if a lot of your debt is from unsecured debt like credit cards, chances are you're not going to have to go through a personal bankruptcy filing.
What you can do is simply pay off your credit cards one by one. How you do that is pretty simple. You simply take 10% of your post-tax income after your budgetary expenses have been covered and put it in savings (for a necessary emergency fund), then use the rest to pay off credit cards and other unsecured debt. Pay minimum payments on all of your unsecured debt, and then apply the rest to the card or debt with the highest interest rate. It won't be long before you'll see your credit card and other unsecured debt paid off if you do this, for the most part.
Some caveats
This doesn't always work with rapidly acquired debt through no fault of your own that's massive, like medical expenses. (It's not difficult at all, for example, to rack up $1 million in expenses and interest charges after a significant illness like cancer and subsequent treatments.) If you find yourself facing that type of situation, slow down. DON'T pursue a personal bankruptcy filing just yet. Instead, DO consult a bankruptcy lawyer and explore your options. You may be able to come up with some solutions to problems besides bankruptcy. And if you can't, your lawyer can advise you of what you should do next so that you're as protected as possible in the event you should have to file for bankruptcy.
Beware of those "credit counseling" companies. Some of them are on the up and up, true, but a lot of them simply want your money and it's a lot more expensive to go through them to resolve your debt than it is to simply do it on your own, especially if it's debt like credit card debt. For the most part, save your money and don't go through a credit counseling service (since they'll take a significant portion of your payments to them as their own fees, not apply them to the debt). Just work on paying off the debt yourself -- but be responsible and don't keep running up credit card balances at the same time as you're trying to pay them off. Put the credit cards away or cut them up if you have to.
In short, personal bankruptcy filing is an option too many pursue too soon as a means to try to get out from under debt. Consider other options first and consult a bankruptcy lawyer if you need to, to determine what's best for you. Doing so could be the best and smartest financial move you could make at this point.
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