How Do I Know If I Should File For Bankruptcy? When is the right time?
You have been experiencing mounting debts for months or years, and have been hoping against hope that something would turn around: Your business would improve. Your kids would finally move out. You would hit those magic lottery numbers. At some point, filing bankruptcy makes more sense than relying on prayer or luck.
Here are some factors to consider as to why a bankruptcy delayed may not be your best move:
Future Increases in Earnings or Assets might be at Risk
If you are smack dab in the middle of your career, or there is a runway ahead for you to improve your earnings, delaying a bankruptcy may only jeopardize that future. You may price yourself out of what is known as the ‘ means test’.. the red line of income above which your eligibility may be compromised. Filing bankruptcy after your income has improved might be deemed an abuse of the system. And as time goes go on, you accumulate more ‘stuff’. You might have to sacrifice more of those assets by delaying your decision to file. Why wait to file when your career is nearing its end or your income is declining? Wouldn’t it have been nice to capitalize on all that effort instead of carrying the load for your creditors all those years?
There are no Long Term Implications to a Bankruptcy done right
There is a common misconception that bankruptcy can affect your credit for many years. This is false. While bankruptcy can appear on your credit report for 10 years, the debts that led to your filing can no longer impact your FICO score once they are discharged. Bankruptcy actually leads to a rapid increase in your creditworthiness, particularly if you maintain a mortgage or car payment. You cannot file again for 8 years, so you are in a lower risk category in the credit world. You will have to tell the truth for 10 years when asked if you ever filed, but all that creditors and employers care about is your recent history. So if you are waiting to file because you fear some mythological impact, you should reconsider those notions.
Long Term workouts may not be worth the Cost
There all sorts of companies out there bellowing about their ability to reduce or eliminate your debt. Don’t bet on it. Most of them are unregulated or ignoring the barely enforced regulations that apply. They take your money, earn interest on it, charge a fee, and hold back payments from creditors hoping they can assert some leverage. It is a fool’s game and in my almost 40 years in this business, I have not seen, even once, a workout or ‘consolidation’ of consumer debt that saved the debtor money over what bankruptcy would have cost. People tend to fear being branded with the evil “B” word…when if they knew the realities of the costs and benefits, they might have made a more rational decision.
Get proper Advice
Get the facts and weigh the pros and cons, and evaluate the timing. If you are well into retirement, and your credit score is not vital to you, bankruptcy may be more stressful than helpful. If your future lies ahead, bankruptcy done right might be the best financial decision you can make. But buyer beware: Not all bankruptcy Lawyers are Created Equal.