It is not uncommon to hear advice from financial professionals dictating that bankruptcy is a last resort and that you should do, essentially, absolutely everything you possibly can before you declare bankruptcy. Now, while it remains sound advice to ensure that you really do have no other choice but to declare bankruptcy before you do so, the problem with the way many industry experts put it is the fact that it leads people to trying everything, including liquidating assets, to find that, in the end, they are forced to declare bankruptcy anyway. This leaves them in a terrible position.

Let’s take a case study of a family man named John who had always been advised that declaring bankruptcy was a terrible thing to have to do and really must be avoided at all costs. This meant that he was very careful in taking a decision about his finances and, despite feeling that bankruptcy really was the only thing that could possibly resolve his situation, he felt too embarrassed to go ahead and file. He therefore used a number of other options, taking out a home equity loan to pay off some of the debt. When this proved insufficient, he liquidated his retirement savings.

When this proved insufficient, he ended up having to declare bankruptcy anyway. Only now, not only was he bankrupt, he had no retirement fund and had lost a portion of equity in his house. On top of this, with a loan secured against his house, any missed payment left him at risk of losing his home. This might seem extreme, but is all too common. The benefit of bankruptcy is that a homestead clause often protects your home, meaning that you could potentially resolve your financial problems without also finding yourself losing your house.

However, like all financial decisions, it is one that should be taken only after careful thought.

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