Do I Need to Default on My Debt before Filing for Bankruptcy?

The timing of your bankruptcy can be a major factor in how successful you are with filing. Just a few months can mean the difference between having debts fully discharged and having to repay them in a repayment plan. Make no mistake – when you file for bankruptcy is one of the most important factors in the process.

One of the reasons people postpone filing is because they assume bankruptcy is only intended for those who are so deeply in debt they are desperate. They wait until they have defaulted on all of their loans to even consider filing. And though bankruptcy is an option if you’ve gotten in so deep you’ve defaulted, you’d actually benefit more if you file before this happens. You don’t need to have defaulted on a loan to file for bankruptcy.

The truth is, according to bankruptcy law, you’re eligible to file for bankruptcy even if you have perfect credit and no late payments. Remember, you can be up to date on payments, but still overwhelmed with debt that you won’t be able to pay off. Eligibility for bankruptcy is based on income requirements, not on the status of your loans.

So how do you know when the best time is to file for bankruptcy? Too many people wait too long, when in reality, they’d be best served filing for bankruptcy as soon as their living expenses outweigh their income. If you owe more than you are making, bankruptcy is likely your best option.

Wouldn’t Borrowing Money Help Me More than Bankruptcy?

People assume that borrowing money, from their own savings or from other people or lenders, is the best way to get out of debt. They transfer balances from one card to another or they pull from their savings to pay off debt.

Obviously, these are options and there are people out there who “lucked out” and were able to use these strategies to get their debt under control. However, these cases are the minority and for most, bankruptcy is a better option for getting out of debt. Creating new debt is rarely a solution to dealing with existing debt.

One of the issues bankruptcy lawyers deal with most is people wanting to or having already used their retirement savings to pay off debt. This is almost always a mistake and in the long run is going to put you in greater financial straits. Bankruptcy can help you protect your retirement savings and still deal with your immediate debt problems, but you need professional guidance when you file if you want to protect your savings.

For more information about how bankruptcy can affect your retirement savings, check out this article from thebalance.com.

“My Debt Problems aren’t that Bad.”

The truth is any debt problem is bad and should be dealt with sooner rather than later. Waiting until you’ve defaulted on one or more debts means you’ve waited too long to take action. Timing is one of the most important factors in bankruptcy success and you’re always better off gathering information from a bankruptcy expert as soon as possible – even if you choose to wait to file, at least you’ll understand your options.

If you’re concerned about debt, but you aren’t sure of the next step to take, we can help. To schedule a free consultation, contact the law office of Frank J. LaPerch, PC at 845.942.5500.