Are you drowning in debt? If so, consider that many people have received a fresh financial start by filing for bankruptcy. Once your finances are stabilized, you can begin rebuilding good credit. But when should you file for bankruptcy? Here are six reasons for when it’s a good time to file for bankruptcy as well as when it’s best to delay filing, along with how a good bankruptcy attorney can help you decide if you should file.
1. AN INABILITY TO PAY OFF YOUR BILLS
One of the main reasons people file for bankruptcy is because they can’t pay off their debts. Consider how a major illness or medical procedure can lead to a considerable amount of expense. What’s more, you may run out of options for paying back your debts. Thus, when all else has failed, filing for bankruptcy can be a good solution.
2. AN UNEXPECTED CRISIS CAUSING SEVERE FINANCIAL PROBLEMS
Having a sudden, unanticipated and devastating event, such as an illness, accident or death of a breadwinner can easily cause financial distress. When this happens, bankruptcy may be your only option for getting back on your feet. A highly qualified bankruptcy lawyer can determine if your financial situation merits filing for bankruptcy.
3. THE LIKELIHOOD OF HOME FORECLOSURE
Another reason why many people file for bankruptcy is because they’re past due on their mortgage payments and stand at risk for their homes being foreclosed. When this occurs, it’s best to file for Chapter 13 bankruptcy as it can let you keep some of your assets. With this type of bankruptcy, you can work out a plan with your lender for setting up a repayment plan allowing you to remain in your home.
4. THE RISK OF VEHICLE REPOSSESSION
The automatic stay of a bankruptcy stops your lender from repossessing your car. If you have a Chapter 13 bankruptcy, you can catch up on your back payments. Moreover, both bankruptcy chapters may let you get back your vehicle, provided your lender recently repossessed it.
5. NOT WANTING TO DIP INTO YOUR RETIREMENT SAVINGS FOR PAYING OFF YOUR DEBTS
If you’re overwhelmed with debt, yet want to avoid touching your retirement savings or 401(k), consider filing for bankruptcy. This can give you a fresh start as well as allow you to keep your retirement assets. In most cases, a person’s retirement accounts remain protected during a bankruptcy, although this mainly depends on the situation.
6. STOPPING A LAWSUIT
If you’re being sued for credit card debt, medical debt or damages from a car accident, you can stop the suit by filing for bankruptcy. However, consider that a bankruptcy isn’t enough to stop some lawsuits.
REASONS FOR DELAYING BANKRUPTCY
There are some reasons to delay bankruptcy, such as:
1. A recent reduction in your paycheck
Although this seems counter-intuitive, filing for bankruptcy when you suddenly have less pay can actually hurt you if you plan to file for Chapter 7. Since the basis for Chapter 7 bankruptcy is financial needs, it’s intended for people in debt who are unable to use a repayment plan involving three to five years. To decide who is or isn’t eligible for Chapter 7, people filing for bankruptcy have to take a Bankruptcy Means Test.
2. Foreseen new expenses and debts
If you anticipate future debts and expenses, it’s best to delay filing for bankruptcy. Usually, Chapter 7 bankruptcy only removes those debts that you have listed on your filing date. For future debts, such as needing to have a hip replacement in which you’ll need to make a partial payment, these costs will be removed if you wait to file for Chapter 7 bankruptcy after you’ve had your procedure.
3. Wanting to refinance your mortgage
Often, homeowners want to refinance their mortgages when interest rates go down, as this saves them money on their monthly payments. But if you’ve filed for bankruptcy, you’ll have to wait before qualifying. Also, most people who are thinking about bankruptcy aren’t even eligible for refinancing their mortgage. To be safe, discuss your best options with a bankruptcy lawyer.
THE BOTTOM LINE
- Bankruptcy may be your best solution if you’ve undergone a traumatic life event causing financial distress, you can’t pay your debts, are delinquent on mortgages or you’re being hassled by collection agencies.
- On the other hand, declaring bankruptcy might not be the answer in other situations.
- An experienced and highly successful bankruptcy attorney can help you make the right decision, besides determine if you should file for Chapter 7 or Chapter 13
If you live in New Jersey, Pennsylvania or Maryland and are considering filing for either Chapter 7 or Chapter 13 bankruptcy, contact us and schedule a free, private consultation in which we can evaluate your case.