When Does Filing Bankruptcy Make Sense?

Should I file bankruptcy?  Is there any other way to settle my debts without filing bankruptcy?  What are the long term effects of bankruptcy?  Or, perhaps the question should be what are the effects of not filing bankruptcy if I know that it is near impossible to pay my creditors back?

Bankruptcy should not be your first choice but also not your last option.

Clearly, normal people want to pay their debts because they owe them and feel morally responsible to satisfy them.  They created those debts and agreed to pay them back.  Sure, hindsight is 20/20 and perhaps you may have opted for other financial choices in the past if you are currently in a whole lot of debt.  But, what’s done is done and reality now is forcing the issue.

When should bankruptcy not necessarily be your last option?  When the cost to your future (and that of your family) is too great. In fact, the cost of not filing bankruptcy also could adversely affect society as a whole.

For example, if you support your children and they rely on you for financial support, the possibility of needing government assistance increases dramatically if you are overwhelmed with debt. You may find yourself on food stamps or needing Medicaid to cover your medical expenses if you are not able to afford health insurance.

Or, perhaps you are nearing mid-life and have nothing saved for retirement. If you hit 65 years of age without any savings, you may find yourself very dependent on government assistance and we all know how bad things are going. And, that costs society as a whole in terms of increased federal and state spending.

What is worse is that not filing bankruptcy may cause you to be an unproductive member of society.  And that is not good for anyone.  Creating or obtaining employment and producing an economic and social benefit for yourself, your family, and therefore for society as a whole, is very important.  Relieving yourself of an overwhelming credit card debt or finding medical debt relief may be what is necessary to move on.

Doing nothing is a choice.  Owing too much debt for too long is a dead end.

Owing substantial debt for too long is very bad for your economic future.  That is not to suggest that people who can afford to make their payments shouldn’t do so.  Rather, the issue is that there is a point where you become a prisoner to your creditors.  You become an indentured servant and perhaps for forever. Essentially, you are working just to eat and have a place to live, but nothing more.  You owe your wages above the very basic necessities of life to your creditors.

In the early years of the American colonies, some people would work for their creditors for free and only receive room and board in return as a way to pay back their creditors for travel expenses to America. The typical time period for this arrangement was 7 years!

The founding fathers saw the need for bankruptcy

When the balance of power and the amount of debt owed between the creditor and the debtor grows too wide, society begins to decline.  People lose their ability to build a better tomorrow. When this happens too frequently, then a country cannot be great and cannot grow stronger.

The founder fathers were very aware of this problem and knew that there had to be protections provided to the common citizen (and businesses) when debts grew too large.  The solution to this financial tyranny was incorporated into the United States Constitution:

The Congress shall have the Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States:

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

“The Constitution of the United States,” Article I, Section 8″