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Who should file for bankruptcy?

Filing for bankruptcy should be a course of last resort because a bankruptcy remains on a person’s credit records for up to ten years. For most people, credit is a virtual necessity in America’s commercial society, and a person without good credit is consigned to a cash-and-carry existence.

Like any important life choice, the decision to file for bankruptcy simultaneously has pros and cons. The Bankruptcy Code offers a number of routes, but the choice depends on his or her circumstances, amount and type of debt, income and assets.

Sometimes, with the help of credit counseling, a person can rearrange his or her debts and escape bankruptcy by reducing his or her standard of living. Doing this, however, means that the financially distressed party must reduce his or her expenses and live below his or her means and thus begin the arduous task of repayment of creditors. Sometimes creditors will work with a debtor and modify the terms and conditions of the debt.

Bankruptcy should not be thought of as an escape from a bad financial decision, but rather as a fresh beginning when many bad decisions and bad luck (or some combination of both) come together to bury a person alive in a coffin of debt. That means, for example, that a person should not attempt to use bankruptcy to escape from a single bad financial mistake like the purchase of gas-guzzling sport utility vehicle he or she cannot afford to pay for or operate.

The tipping point for most people is the time when the weight of debt shifts financial buoyance to the negative; that is, there simply is not enough money between paychecks to meet life necessities.

The decision to file for bankruptcy may be likened to the decision to jump from a sinking ship into the cold water of the ocean. It would certainly be better not to have to jump at all, but sometimes the call is intuitive. Staying aboard too long means that a person runs the risk of being pulled under when the ship goes down.