The words “filing for bankruptcy” can be enough to send those struggling financially into a full-blown anxiety attack. You may be thinking about the dramatic television depictions of bankruptcy, with peoples’ belongings being publicly advertised for sale and everyone becoming aware of their financial destitute. Because of these dramatizations, many will seek alternative options for paying off their massive credit card debts. No one wants to find themselves in the situation where bankruptcy is their only option; however, these alternatives can be more harmful to your credit than properly filing for bankruptcy. Debt settlement companies are a commonly advertised substitute, but the promises are often too good to be true.

What Is a Debt Settlement Company?

A debt settlement program is one sponsored by a for-profit company with the promise that they will work with your demanding creditors to negotiate a viable settlement for you to resolve your past-due payments. This settlement will be a lump-sum amount that is less than your total debt owed. Since it is unrealistic that you would have this money on hand, you will be asked to set aside a fixed amount every month into a savings account. Once the sum totals the settlement that they negotiated, you will pay the settlement amount. These companies or programs often tell their clients to halt their monthly payments to their creditors as they gather their settlement funds in their savings account.

The timing of your bankruptcy case is important, sometimes extremely important. It can determine if your case is as successful as it can be.

Five weeks ago we started a series on why you should get legal advice from a bankruptcy lawyer. We’ve also been making a point of showing why it’s smart to do so early, when you start considering bankruptcy.

Before filing bankruptcy, should you pay child/spousal support debt in the meantime? This may depend on whether you file Chapter 7 or 13.

Our last three blog posts have been about what you should and should not do before filing bankruptcy. Three weeks ago we focused on keeping your assets, especially any retirement funds, and collateral, such as home or vehicle. Two weeks we discussed whether to take on more debt, maybe to buy time and not need to file bankruptcy. And last week we looked at whether you should file any unfiled income tax returns, and pay income taxes.

For many people, the thought of filing for bankruptcy is a scary one. However, for many people, filing for bankruptcy is the best thing they could do for their finances. Filing for bankruptcy allows you to wipe your slate clean and discharge most of your unsecured debts, but it does come with some consequences. Filing for bankruptcy might make your life more difficult in the future, by making it harder to borrow money, lowering your credit score or even affecting your insurance rates. It can be difficult for some people to gauge whether or not bankruptcy is in their best interests, which is where a skilled Texas bankruptcy lawyer can help.

Your Debts Far Exceed Your Income

Think about all of your different types of debt: your mortgage or rent, car payment, all of your different credit cards, and personal loans. How much total debt do you have? Now, think of your income. How much money do you bring in each month? If your monthly debt obligations are much higher than the amount of money you bring in, you may want to consider filing for bankruptcy.

If you’re considering filing bankruptcy, should you first prepare and submit any unfiled income tax returns? Should you prioritize paying them?