Ten common signs that you should consider filing for bankruptcy.

1. You need to take out retirement money (IRA, 401k) to pay your bills. If you are considering withdrawing money from a retirement account you need to consult with an attorney or accountant about other options to pay your bills. Retirement money is exempt under the Federal bankruptcy exemptions up to one million dollars. The reason that congress decided to exempt this money is they want to encourage people to save money so they do not become wards of the state when they retire. So before you withdraw that exempt retirement money talk to a lawyer to determine if bankruptcy is a good option for you.

2. You are only able to make the minimum payments on credit cards every month, but in making the minimum payments the balance on the credit card never decreases. I have seen clients who are making substantial payments on credit cards only to discover that the balance never decreases. These same clients then filed a chapter 13 bankruptcy and they not only lowered their monthly debt payments but, will have the debts repaid in three to five years. The reason for this is the payments on unsecured credit card debt in bankruptcy is interest free. It is amazing how much faster unsecured debt is repaid with no interest as opposed to the 30% interest rates found on many credit cards. The only fee associated with the chapter 13 are the attorney fees, and the trustee fees to administer the case.

3. You are getting constant calls and harassment from creditors. If you are constantly having to avoid answering your phone because of debt collectors you need to consider talking to a bankruptcy attorney. One of the benefits of filing for bankruptcy protection is called the automatic stay. This automatic stay will prevent creditors from calling or sending letters during and after the bankruptcy. For many individuals it is a nice change to be able to answer their phone after being called for months or years for past due debt.

4. You should consider talking to a bankruptcy attorney if you are being sued for unpaid bills. Many people who receive a summons and complaint in the State of Minnesota do not realize that Minnesota does not require the Summons and Complaint to be filed with the court. Instead Minnesota allows "pocket pleading" where the lawsuit can be started by the attorney, and only needs to be filed with the court once the answer is received or they move for default judgement. It is imperative that an answer be sent to the attorney within twenty days after being sued. If the answer is not received within twenty days the attorney will move for a default judgement. Once the default judgement is entered the creditor can use a number of tactics to collect the judgement. The most common being a wage or bank garnishment. Minnesota also allows pre-judgement garnishment. Pre-judgement garnishment means that the attorney can garnish wages or bank accounts before the judgement is even entered by the court, if the twenty day answer period has expired. The moral of the story is that if you receive a summons and complaint consult an attorney to determine how to proceed this could prevent you from receiving a default judgement.

5. You should consider filing a bankruptcy if you are planning on getting a divorce and have overwhelming debt. In my practice one of the most common reasons for filing for bankruptcy protection is divorce. The main reason for this is that people have to divide their income to support two households instead of one. The other common reason are spousal support payments or child support payments. If you are thinking about getting a divorce and have a lot of debt, you should talk to an attorney about filing a bankruptcy before the divorce. If you are eligible to file a chapter 7 bankruptcy having all of your unsecured debt eliminated will make the divorce process much easier. It will also make the process of supporting two households more manageable.

6. If you have recently been laid off and cannot continue to make all your debt payments it is a good idea to consult with a bankruptcy attorney to determine what options you have to take care of your debt. It is common for clients who lose a job to go into retirement money to pay the bills and that is typically a mistake, see post #1.

7. If you find yourself borrowing money from friends and relatives you may want to consider talking to a bankruptcy attorney. Once you need to borrow from friends and family to pay your monthly bills you probably need to either cut expenses or consult with someone regarding your monthly budget. In many cases borrowing from friends and family creates more difficulties once you need to file for bankruptcy. Payments to insiders need to be disclosed for at least the last year, and loans from family need to be listed on the bankruptcy schedules.

8. Medical problems are one of the major causes of bankruptcy filing. In some cases individuals cannot continue to work at their current job, forcing a job change, that may result in a substantially lower salary. Even if an persons job is not affected by the medical problem, health insurance that does not cover all the medical bills often creates a situation where it is impossible to keep up with the bills, forcing a bankruptcy filing to get rid of the medical debt. In many cases the medical debts can be negotiated for a substantial discount, but before using any retirement funds to settle medical debts, an attorney should be consulted to determine if filing for bankruptcy protection is a good option.

9. A commons scenario that forces someone to file for bankruptcy especially given the recent housing downturn is house payments that are not affordable. If an individual purchases a home that they cannot afford in many cases they will rely on credit cards to continue paying for necessities, creating a difficult situation where the credit cards are charging between 10% and 30% interest on the outstanding balance. The solution of relying on credit cars to pay for essentials will only last for so long, before the credit card payments increase causing the individual to choose between making the house payment and making the credit card payment. If you choose to stop making the credit card payments the interest rate increase to over 30% and they begin to tack on late payment fees and over the limit fees causing the balance to skyrocket. If you stop making the house payment your home will go into foreclosure. This entire situation could have been avoided if the house payment was affordable from the beginning lessening the dependance on credit cards.

The housing problem is only compounded if someone has an adjustable rate mortgage and the rates reset after a few years. Once the rate increases the person may not be able to afford the mortgage payment or the credit card payments, if an individual is facing this situation they should consult a bankruptcy attorney before they raid retirement or other exempt accounts. The other issue I commonly see with homeowners is that even if they have owned a home for a long period of time, they have continually tapped the equity in the home. In some cases they tap the equity to pay credit card bills or improve their home. The problem with taking the equity from a home is that it increases the payment and creates a situation where it is difficult to ever get the home paid off.

10. The final sign that you should file for bankruptcy is that you are overspending and cannot keep up with all the debt payments. In some cases people need to file for bankruptcy protection because they lived beyond their means for many years on credit cards. The credit cards companies make this easy by offering credit with little or no verification of actual income. The credit card companies seem to encourage this behavior since the most profitable customers are the ones who pay interest and late fees every month. If the credit card companies actually required proof income before setting credit limits that may solve some of the problems with overspending, but increase the cost of credit for consumers because of the increased paperwork. Individuals also need to take responsibility in how they manage their finances. In some situations people are clearly overspending and under saving, and if any of the above mentioned things (post one through nine) happen they have no way out of the debt other than bankruptcy.