I’m 45, recently divorced, lost everything and I’m $160K deep in debt. Would I be better off declaring bankruptcy than trying to dig out of this hole?

Bankruptcy can be a solution but know how it works first

Bankruptcy can sometimes be the solution to your debt problems, especially when you have one that’s more than six figures. However, depending on your situation, you may not just be able to make all of your debt disappear.

If you file for Chapter 7 bankruptcy, or liquidation bankruptcy, you can eliminate most unsecured debts. However, you can't erase unpaid alimony or child support. You'll have eligible debt erased in between three to four months after your case closes. However, most of your property will be sold to satisfy your creditors before that happens.

You also have the option to file for Chapter 13. If you can prove that you can make payments towards your debt, then you'll enter into a repayment plan that lasts three to five years. Any remaining balance at the end of that period will be eliminated.

You get to keep your property with a Chapter 13 claim but you must be up-to-date on secured loans — like car loans — to avoid losing assets that act as collateral. You must fulfill all obligations under Chapter 13, or the case will be dismissed or converted into a Chapter 7 bankruptcy file.

Chapter 7 stays on your credit history for 10 years, while Chapter 13 remains on your record for seven. Both can damage your credit rating and make it difficult to apply for loans. However, you can rebuild your credit over time by using secured cards. This may be a better outcome than struggling to pay back $160K for an indiscernible amount of time.

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Explore alternatives before filing for bankruptcy

While bankruptcy provides an out, you do need to ensure that you’ve exhausted all other options first because it is a radical decision.

Depending on the kind of debt you have, you can try to negotiate with your creditors to reduce what you owe or enter into a voluntary payment plan. Refinancing expensive loans like credit card debts using a loan with a lower interest rate could also sometimes be helpful.

The bottom line is that unless you make a lot of money, those solutions may not work. You could find yourself struggling for years and compromising a secure future as you pay hundreds or even thousands monthly.

It’s still worthwhile to re-evaluate your monthly payment plans and look at how long it would take to pay off such a large debt. Ultimately, only you can decide which approach will work. Know that bankruptcy is on the table and isn't always the end of the world since it was created for situations like yours where life knocked you down and you need a little help getting back up again.