How Do You Know When it is Time to File for Bankruptcy?

Certain things in life come with clear instructions for when it is time to take intelligent action. For example, when we have driven a certain number of miles or for a specific length time, we head to a mechanic to get our oil changed. Or when we’re cooking something at home and the recipe tells us to “broil for 10 minutes,” we follow that advice to avoid starting all over again (or maybe just giving up and ordering a pizza!).

However, there are other scenarios in life when there is no definitive, objective standard that tells us when we should continue on our current path, or if we need to make a course correction. And unfortunately for many people, deciding on whether they should file for bankruptcy is one such scenario.

Why “unfortunately”? Because many people who ultimately end up filing for bankruptcy wish that they had done it much sooner. Indeed, the emotional dread and financial damage they anticipated never came to pass, and instead they realized something unexpected and quite astonishing: contrary to what most people think — and what all debt collectors want you to believe — bankruptcy is not a form of punishment. Fundamentally, it is a legal protection designed to give individuals, families and businesses the opportunity to get out from under an unsustainable and increasingly worsening debt situation.

Signs to Watch For

Since you’re reading this, then there is a good chance that you or someone that care about — such as a family member or friend — is contemplating bankruptcy, but is not sure whether it’s wise to file now or perhaps later. As noted above, there is no definitive, clear-cut answer to this inquiry (i.e. there is no odometer reading or recipe to consult). However, there are some well-established signs that strongly suggest that filing now is in your best interest. These signs include:

  • Your income has dropped significantly and/or your expenses have risen significantly, you cannot pay your bills, and there is no reasonable expectation that your cash flow situation will be corrected in the near future. For example, you may have recently lost your job, or you may be facing high medical bills that insurance will not cover.
  • You are at risk of losing your personal assets. For example, you may have pledged a personal guarantee on a loan for yourself or someone else, or your business may have debts that you are personally liable for.
  • You are being pursued by creditors, and may be terrified of opening your postal mail or checking your voicemail. If you are employed, it is likely just a matter of time before creditors seek to garnish your wages.
  • You are using cash advances to pay off debt. Even you are technically caught-up on your car loan or mortgage, understand that this is not sustainable and you are not managing your debt — you are racing down a runway, and will soon run off the tarmac.

Get Advice to Understand Your Options

If you are experiencing one, some, or perhaps all of the above-noted signs, then the smartest and safest thing you can do is contact our office for a confidential consultation. You will have all of your specific questions answered, and will learn about your options and what the chapter 7 bankruptcy filing process is like (for an overview, read our article here).

We have been filing consumer bankruptcy cases for more than 30 years. Our experience is your advantage.