When is it Time to File Personal Bankruptcy?

Most people don’t like the idea of filing for bankruptcy, even when debt issues are snowballing, causing them to lose sleep, and threatening their physical and emotional wellbeing. It is commonplace for debtors to think they just aren’t trying hard enough or that if they can just get that better job or get a particular debt paid off they’ll be in better shape. Meanwhile, past-due balances along with interest rates and penalty fees continue to accrue and cause the problem to escalate.

It’s often difficult for people to see that it’s time to file for bankruptcy. They may regard bankruptcy as giving up (not true) or think it’s not bad enough to consider bankruptcy. Or they may be afraid of losing important assets like their home or car. However, when bankruptcy is in order it’s important to get it done before the situation gets worse. Below is a list of indicators that, if present, suggest strongly that bankruptcy should be considered.

Indicators that it may be time to file for personal bankruptcy

Financial insolvency is like a syndrome. The more symptoms a debtor suffers the greater likelihood that filing for bankruptcy is in order. Most individuals and families who can benefit from filing for bankruptcy experience several of the following:

• The financial hole keeps getting deeper — interest rates and penalty fees and other factors exceed the payments you make and cause your debt load to increase in month rather than decrease

• Borrowing to make debt payments — this is like trying to douse a fire by throwing gasoline on it, yet many debtors resort to this just to get aggressive creditors to go away even if it’s just temporarily

• Can’t afford payments that will pay off debt within three years (36 months) — if payments are too low, interest rates and penalty fees can perpetualize a debt so a debtor can’t get out from under it; debtors should be sure to include future interest when calculating how much it will take to pay a debt off in three years

• Can’t afford to pay minimum payments on all credit cards, loans and other debts — sometimes it’s not the size of any one debt or the size of the required payment for a single debt but rather the impact of many debts piled together; failure of a debtor to make minimum payments on all his/her debts will cause penalty fees and interest to accrue until the debt load is out of control

• Paying debts with retirement funds — the closer a person is to retirement the worse of an idea this is, yet seniors, who can least afford to jeopardize their retirement income, are those most likely to do so to avoid bankruptcy because of the stigma this generation traditionally puts on bankruptcy

• Others will suffer if situation continues — the more dependants a debtor must provide for, the less they can afford to make payments to credit cards and other unsecured debts rather than save money for emergencies or pay for health insurance; if any single symptom can indicate a need for bankruptcy, this one is it, yet trying to continue making those payments could result in foreclosure or eviction and everyone ends up without a home

• Creditor collection efforts threaten employment — if a creditor calls to garnish wages for a judgment and upsets a creditor’s employer, the debtor may be in jeopardy of losing his/her job, which will make it impossible to keep up with any of their debts

• Upside down on their home with a second mortgage and/or equity line of credit — many debts secured by real property will survive a foreclosure and the debtor will still owe any remaining balance after the property is sold and proceeds subtracted from the balance; bankruptcy, however, can completely discharge these debts

• Other options are not available, practical or helpful — insufficient income, poor credit scores and other factors put options like debt settlement programs, consolidation loans, negotiating with creditors, loan modification, lifestyle changes, or gifts from relatives out of reach, but they should be considered before filing for bankruptcy

The Next Step

Anyone who suffers any of the above symptoms, especially anyone who suffers multiple symptoms, should strongly consider filing for bankruptcy. The next step is to consult with a bankruptcy attorney who can help the debtor confirm that bankruptcy is the best solution. If it is, the attorney will file the case in court and notify creditors, which will put a stop to all collection efforts until the bankruptcy process is complete or the bankruptcy court lifts the stay.

In Maryland, bankruptcy and debt solutions attorney John D. Burns and his firm can assist in identifying the best options for your situation and put a plan into action that will resolve your debt issues and get you back on your feet. Call our office at 301-441-8780 to schedule an appointment or e-mail us at jburns@burnsbankruptcyfirm.com.