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Why bankruptcy is better than ignoring problems

Some people feel like bankruptcy is that one option they'll never consider. They don't want to do it, no matter what. Instead, some experts say that they'll just bury their heads in the sand.

The problem with this approach is that it also does not solve the problem. Ignoring it does not make it go away.

The issue, perhaps, is that people think bankruptcy means that you're choosing not to pay your debts. That's not true. You can't pay your debts either way. Bankruptcy is just the logical legal step that works toward a solution and shows lenders that you are not, in fact, opting to ignore those payments when you could make them. They'll see your financial picture and know that it's out of your hands.

For instance, maybe you have a mortgage payment that runs you $2,000 per month. You have a car payment for $500 per month. You tend to put about $3,000 on your credit card each month, and that doesn't even take into account the utilities, car insurance and all the rest. You're also paying $700 per month for student loans.

However, you lost your job, and your new job only pays you $3,000 each month. That's after taxes, but it's clear that you can't make all those payments.

In a situation like that, bankruptcy isn't you choosing not to pay. No matter how badly you wanted to pay, it's just mathematically impossible.

This isn't to say that bankruptcy is right or wrong for everyone; each case is different. But it does show you that you should learn about all of your legal options and consider the realities of your financial situation.

Source: CNBC, "The good thing about bankruptcy," Sakina Spruell, accessed June 29, 2017

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