What Are the Dangers of Waiting Too Long to File Bankruptcy?

There are a few dangers by waiting too long to file for a bankruptcy. Most people do not think about bankruptcy until they get into a situation where things do not look good financially. There is so much misinformation, and so many myths that I think many people just assume that bankruptcy is a terrible thing. They assume it is going to destroy your credit, you are going to lose many assets, and they have this negative stigma attached to it. Because they never really had to educate themselves on what it actually does for people.

Many people hold onto this assumption that bankruptcy is the nuclear option. It’s going to destroy everything and they want to put that painful experience off – and avoid even considering it until they cannot avoid it any longer. What can happen is people delay educating themselves by sitting down with the bankruptcy lawyer for a free consultation. They do all the other things that could potentially be; a) detrimental to their ability to eventually exercise their bankruptcy rights; or b) prohibit them from being able to file bankruptcy at all. So we look at a few issues with people, in terms of whether bankruptcy is a good option for them and if it is going to help them meet their goals. One of those is the qualification. We are focused primarily on chapter 7 at that point, but you have to qualify for chapter 7 bankruptcy. Those qualifications are based on your income.

What I have seen happen to people before, is people who have been struggling for years. Maybe they were working on finishing a degree or they had a long period of unemployment, and have struggled with debt during that time. They could have come in and met with us and easily qualified for bankruptcy at that point. Now, they have just recently started a new job or got married, and now we are looking at a household income that is much different than their income was as a single person. They are no longer meeting the qualifications for a chapter 7. They still are able to file for chapter 13, but if you have to choose between the two, all else being equal, chapter 7 is much more preferable, because a chapter 7 takes three months, and a chapter 13 at a minimum takes three years.

From that standpoint, if your circumstances changed dramatically before you go in to meet with a bankruptcy lawyer, yes, you can definitely be missing an opportunity to resolve things more quickly. Another thing that can happen is bankruptcy is typically the last option for people. It should be for a good reason. If you can afford to pay your debt, you should, but many people try to bend over backwards to pay off these debts. There are a few things that are actually detrimental to filing bankruptcy, when they could have just filed a bankruptcy without liquidating their 401(k), or refinancing their home mortgage. Oftentimes, these alternatives are only paying off a portion of the credit card debt, essentially putting a Band-Aid on the problem instead of resolving it. Now they’re sitting in the same situation they were two years ago and they’ve got a bigger mortgage now because they refinanced their house.

Borrowing money from friends, or relatives in order to pay out debts, or make ends meet before filing bankruptcy, and then trying to pay those people back before the bankruptcy is filed, that can cause potential issues with preferential transfers. The way we deal with that is, we wait a certain period after the payments are made before we file the case, so it can definitely cause issues. I advise people, before you make any kind of a drastic move, come in for a free consultation. It is free, there is absolutely no obligation, and just educate yourself about bankruptcy. Find out what it can and cannot do for you, and the pros and cons. That way, you can make an informed choice on what the best option is for you. Maybe it is not bankruptcy, but it very well could be.

If it is, you want to make sure that you are doing things that are not going to hurt you in the future. It always makes sense to just pick up the phone, and talk to somebody. Figure out what the situation is, because there is so much misinformation out there; do not assume that bankruptcy is something you cannot do.

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