Declaring bankruptcy is not a desperate measure, and it's nothing to be afraid of. It can give you a fresh financial start by helping you get rid of mounting debt. So, it is a 'second chance' for you to rebuild your finances.

The bankruptcy process starts with filing a petition by the debtor or creditors. This is when you can no longer pay your debts, loans, or any outstanding payments. All assets owned by the defaulter are measured and can be used to pay some portion of the outstanding debts.

In 2021 the US Courts reported that around 400,00 people filed for bankruptcy. So you are not alone in this dilemma.

Let's explore some warning signs that make now an excellent time to consider filing for bankruptcy.

1.You Have Mounting Credit Card Debt

Credit Cards offer great value but at high-interest rates. Also, it's easy to get carried away with the spending and even pay for necessities using them.

Credit card companies give a limit on your card, but they can increase the limit when needed. Excessive use of credit cards can leave a considerable amount of high interest for you to pay later. Most credit cards, on average, had around 16.5% interest in 2021, and that percentage continues to grow steadily.

So your spending may sound insignificant, but in reality, it can quickly snowball into a massive figure, especially if you don't pay off the balance in full every month. Soon, the banks come calling for you to pay your credit card bills.

If you can't meet the deadlines in time, it's best to file for bankruptcy instead of trying to dodge the debt collectors.

2. You Use Loans To Pay Off Debts

If you are stuck in a never-ending cycle of debt, using one loan or credit card to pay off the other, bankruptcy may be your only way out.

This means that your liabilities now far exceed your assets and income, and you can't even afford to service the debts, let alone pay them off.

3. You Have Huge Outstanding Liabilities

If your mortgage far exceeds your income or your salary can't keep up with large student loans, look into bankruptcy to help you sort out the situation. It can be painful to get buried under liabilities that keep on growing. Why not breathe easy and let bankruptcy help you restructure the loans where possible?

The same holds true for entrepreneurs and business owners who work on credit terms. You may face financial difficulties when your payback gets delayed or debtors default. As a result, vendors or traders can cut the supply of goods due to your inability to pay back in time. Bankruptcy can help your business get back on track by helping you deal with creditors in the best possible way for your circumstances.

4. You Fear Your Paycheck Might Get Garnished

Paycheck or wage garnishment is when the courts give an order to your employer to send a portion of your income directly to your creditor or the entity you are liable to pay.

Courts ask your employer to pay the specific amount until all the debt is paid. Paycheck garnishing often results in bankruptcy, even when you are not in financial trouble.

5. You Have Been Severely Sued

Lawsuits and court cases are long-winded processes that require time, effort, and money. The best practice is to avoid situations that can lead to such outcomes.

However, it's prudent to prepare for bankruptcy if your cases continue to draw longer or courts have given the decision in favor of the opposite party, which can result in you paying them a considerable amount of money. Courts can even give orders to freeze your assets or ask you to pay funds to courts.

6. You Are Unable To Pay Medical Bills

Healthcare-related expenses are a big reason for bankruptcies. While minor medical emergencies don't drain your accounts, things can get out of hand fast in case of accidents and rare diseases.

Getting hospital bills worth thousands of dollars is a common occurrence that can leave you broke or in debt with maxed-out credit cards. Those in health insurance are no exception.

7. Your Creditors Are Getting Angrier

If your vendors and traders are cutting supply to you, harassing you, and the bank has left you at the mercy of the recovery department, it's time to file for bankruptcy.

Conclusion

These are common signs that you should prepare for an impending financial crisis. If you see these red flags early, it's possible to tackle the situation and exit your debt burden with grace, enabled by the bankruptcy proceedings.