If you've been struggling with a significant amount of debt and can't seem to make any forward progress paying it off, you might be thinking about the possibility of filing for bankruptcy. While filing for bankruptcy can be seen as an extreme solution, sometimes it is the best possible option. Understanding when bankruptcy might be your best choice can help you determine how to proceed with your current financial situation. Here are a few things to think about.

Did You Try Negotiation?

Sometimes you can negotiate your debts with your creditors and settle those debts for a fraction of what you owe. Many creditors view settling as a way of receiving something where they may not otherwise receive any money at all. 

However, if you have reached out to your creditors and they are unwilling to work with you and make a payment arrangement or reach a settlement agreement, you may find that filing for bankruptcy is the best option to resolve your debts.

How Long Will It Take You To Pay Off Your Debts?

Look at how much money you currently owe your creditors and what you are able to afford for payments. Consider, at that rate, how long it will take you to clear those debts. If you're looking at the possibility of five years or more to pay those debts off, it may be advisable to file for bankruptcy.

When you're facing that much time to clear your debts, you're likely financially overextended and unable to meet your obligations. That is precisely what bankruptcy was designed for. 

Do You Have Enough Assets To Offset Your Debts?

Another thing that you need to consider when you are trying to decide if bankruptcy is right for you is the comparison of your assets to your debts. If you have enough assets to cover those debts, you have the option to liquidate those assets and pay the debts off. 

If, on the other hand, you have very few assets when compared to the amount of debt that you have, you might find that it's in your best interest to file for bankruptcy. Bankruptcy can help you clear those debts more easily.

Do You Know Which Chapter Is Best?

In addition to determining if your financial situation warrants the filing of bankruptcy, you also need to determine which bankruptcy chapter is best. 

Chapter 7 bankruptcy will allow you to eliminate your debts, but you'll have to liquidate certain assets to contribute money to the debt settlement. Once your assets have been liquidated and those funds distributed, the balances are eliminated.

Chapter 13 bankruptcy, on the other hand, is a restructuring process. Your debts will be restructured into more manageable payments and you'll have to pay the balances to resolve the bankruptcy.