Bankruptcy

The Right Time to File Bankruptcy?

By Chris Kramer

A refreshing article published recently in the Kalamazoo (Mich.) News underscores the role bankruptcy plays in helping filers overcome debt and draws attention to the oft-neglected question of when is the best time to file.

The article points out that too many people try to avoid filing bankruptcy at all costs and wait until they are financially desperate to file. Unfortunately, this is not always a good plan, as it may mean that filers use up retirement accounts (which are often exempt from creditors in bankruptcy court) and set themselves back for their post-bankruptcy life.

The article provides a helpful list of warning signs that filing for bankruptcy may be a good option sooner rather than later:

• Borrowing money to pay debts: Whether you're using one credit card to pay another, relying on payday loans or hitting up family and friends for cash, this is a bad sign.
• Dipping into retirement funds to pay debts: Again, your qualified retirement savings will likely be safe in bankruptcy court and heavily taxed if you take it out early. And once you spend that money, it's gone.
• Falling short of minimum payments: If you cannot make even a minimum credit card payment each month, bankruptcy may be a good option.
• Selling your goods to pay debt: If this is a one-time thing and you're shedding appliances you can do without, you may be fine. But if you're consistently scouring the house for stuff to trade for cash, you may be in trouble.
• Getting contacted by bill collectors: Phone calls and mailings from your creditors, especially when they start to add up, can be halted by bankruptcy's automatic stay.
• Having your wages garnished: If creditors are going straight to your employer to collect on debt, take it as a warning sign.
• Dealing with increased tension or stress: Money can be tough on your home life. Whether you're having trouble sleeping, fighting more or just generally stressed out, you may need a serious solution for your debt.

A New Beginning

It's important to understand that filing for bankruptcy does not mean admitting defeat or failure. Rather, it is a proactive and difficult decision you must make to save your financial future. Filing for bankruptcy can:

• Help you save your retirement fund so that you?re not destitute or a burden on taxpayers in your golden years.
• Give you a chance to start over financially and the knowledge you need to make better decisions in the future.
• Stop stressful contact from creditors.

Of course everyone's financial situation is different, and this post is not meant as advice for any one situation. If your finances are at their breaking point, considering contacting a local bankruptcy attorney for an evaluation.

Full post as published by The Bankruptcy Blog on February 10, 2010 (boomark / email).