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Throughout Zero Debt, I’ve attempted to cover a host of common situations that consumers with credit or money management issues face. But there are a host of other economic dilemmas, and you may still need to address some of these special situations to achieve financial freedom. Read on to find out if any of these scenarios apply to you. Or, if the information you learn in the following pages could help someone you know, be sure to share it with him or her.

Bankruptcy: Your Last-Ditch Option

The number of debt-laden consumers seeking bankruptcy protection from their creditors has reached unprecedented levels. In 2005, a record 2.1 million households declared bankruptcy. And in 2006, another 617,000 went broke. By 2007, bankruptcy filings surged to just over 850,000, and will likely rise in 2008 and beyond.

If you’re one of the many consumers filing for bankruptcy – or considering it – please think long and hard before you take this extremely drastic step.  My experience in talking to consumers has been that most attorneys specializing in this area are quick to advise people to file for bankruptcy.  On the other side, many credit counselors may tell you to never, ever file for bankruptcy. Obviously, there’s no one-size-fits-all solution here.  But I believe that even if you’re drowning in debt, bankruptcy should be a last resort – contemplated only after you’ve truly exhausted all other possibilities.  You should also know a few basic facts before you entertain the prospect of a bankruptcy.  For starters, filing for bankruptcy isn’t free – or even cheap.  Expect to pay $500 to $1,000 or more in court filing fees and attorneys costs, depending on where you live and the complexity of your situation.  Bankruptcy also doesn’t get rid of all types of debt. For instance, spousal and child support obligations are not dischargeable in bankruptcy; and in most cases, neither are student loans and tax debts.

In Everyone’s Money Book on Credit, author and personal finance expert Jordan Goodman notes that declaring bankruptcy is no panacea, because a bankruptcy filing remains on your credit for seven to 10 years and hampers your ability to secure future credit.

“Potential employers and landlords may also learn that you declared bankruptcy,” Goodman says. “Therefore, bankruptcy is not exactly the fresh start that many lawyers advertise.”

Another consideration: bankruptcy may really haunt you much longer than the decade that it is listed on your credit report. How so? Some job or credit applications ask you: Have you ever filed for bankruptcy? Even if your bankruptcy was 15 years ago, you’re legally required to say “Yes.” If you lie, you’ve just committed a crime.

The Consumer Education Center of the American Bankruptcy Institute, a non-partisan agency, says you may want to consider bankruptcy in the following situations:

• Your wages have been garnished or your bank account has been attached
• Most of your debts are unsecured, like credit card bills, hospital or doctor’s bills, etc.
• Your total debt, not including your a car or house loan, is more than you could pay, even over five or more years
• Collection agencies are calling you at home and/or at work
• Your payments are more than 30 days behind on more than one bill
• There are lawsuits pending against you
• You have high medical bills not covered by insurance
• You owe income taxes that you are unable to currently pay
• You have few assets
• You have little or no savings
• You have had property repossessed (such as a vehicle)

I think these are good guidelines. But don’t feel compelled to rush over to bankruptcy court just because you fit one of these criteria. Certainly, though, if you find yourself saying “Yes, that’s my situation” to several of these areas, then it’s time to at least weigh your options.

Next – Day 31: Address on Other Money Woes, Credit Issues, or Special Financial Circumstances (Part 2)

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