For some people, payday is a day of mixed feelings. It can bring a sense of freedom as you are finally able to fill your refrigerator again or top off the fuel in your car.

It can also be stressful, right? Once your direct deposit goes through, it’s time to tackle the pile of bills sitting on the end of your counter. For many people, the money doesn’t stretch far enough to cover all of the payments due.

Having more bills than you have means to pay them happens to many people at least once in a while. Surprise car repairs or medical bills can throw your budget off balance.

However, if you consistently owe more than you can pay, it might be time to consider filing for bankruptcy.

When is bankruptcy the right choice?

Having trouble sticking to a budget might be the first financial warning sign. While it doesn’t automatically mean you’re going to have to file for bankruptcy, there are some red flags to watch for.

Financial Warning Signs

• Is your home nearing foreclosure?
• Have you slipped behind on bills because you’ve been out of work for a while?
• Do you have enough cash for gasoline and groceries, or are you buying your necessities with a credit card?
• Are you behind on your taxes?
• Have you had any sudden big payments, such as car repairs or medical bills that you can’t afford?
• Do you pay only the monthly minimum on your loans and credit cards?
• Are your wages being garnished?
• Have you got a solid figure in your mind of how much debt you’re actually in, or are you making a best guess?
• Do debt collection agencies call you?
• Does debt consolidation sound like a good option?

If you’re answering yes to more than a few of these questions, chances are you could be nearing a point where filing for bankruptcy might be helpful for you.

Three steps for assessing your situation

While bankruptcy filings have fallen by around 2.6 percent in the past year, they’re still a viable option for people whose financial troubles have gotten out of hand.

If you feel that bankruptcy might be your best bet for regaining financial freedom, it’s time to do some math. Grab a calculator, a notebook and a pen and take stock of what you have.

Step One: Total all your assets

This could include your vehicles, equity in your home, stocks and bonds, etc. Focus on assets that could be liquidated easily, because this could help you decide later which type of bankruptcy you want to file for.

Step Two: Add up your debts

If your debts are larger than your assets, you probably struggle to pay your bills every single month. This means you could be a good candidate for bankruptcy.

Step Three: Weigh the advantages and disadvantages

By filing for bankruptcy voluntarily, you could avoid being taken to court by creditors who want to sue you to get their money. Besides being forced into bankruptcy, certain debts could be discharged completely. The process also puts an ‘automatic stay’ on creditors so they can’t send bill collectors after you.

There are some downsides, though. Depending on the type of bankruptcy you file for, the filing will stay on your records for 7-10 years and will probably impact your credit score.

Also, if you file for a Chapter 7 bankruptcy, you could lose some of your nonexempt property. This could potentially include your home, although most often homes are exempt.

If you decide to file for bankruptcy, you’ll need to choose whether to file for a Chapter 13 or a Chapter 7 bankruptcy. Chapter 13 filings allow you to keep your home and assets but make new repayment arrangements with your creditors. In a Chapter 7 filing, some of your assets could be sold to repay creditors.

Conclusion

Although bankruptcy may be scary, it’s also frightening when you don’t know how to pay your bills. If you’re always behind on payments, Bankruptcy might be the vehicle that could move you from payday dread to payday contentment.