When should I file for bankruptcy?

Bankruptcy is a legal process that can lead to a fresh financial start. Individuals who face unmanageable debt may struggle with whether or not bankruptcy is the right option for their financial future, often because they feel a moral obligation to repay what they owe. But when debt relief is not an option, it may be time to consider filing for relief through bankruptcy.

In most cases, it is a good idea to start looking into bankruptcy before tapping into retirement savings to pay off debt. Bankruptcy can often help save the funds in these accounts while you figure out another way to handle your current financial obligations. When timed wisely, bankruptcy can also help you save your home and car while discharging, or essentially forgiving, certain debts. Qualifying debts generally include credit card bills and expenses related to healthcare.

Is there any reason to wait to file for bankruptcy?

There are some situations that should trigger a pause before moving forward with bankruptcy. One example would be if you know your income is going to decrease in the future. The bankruptcy process involves what is known as a means test. This is a calculation used to determine if you qualify for a Chapter 7 or a Chapter 13 bankruptcy. It takes your income into account. As a result, a lower income would increase the likelihood of you qualifying for a Chapter 7 which would discharge most of the unsecured debt. With a higher income, you may have to file a Chapter 13 and pay back a portion of your unsecured debt in monthly installments over a three (3) to five (5) year period of time.

There are many questions to ask before determining the right time to file for relief through bankruptcy. Questions may include, but are not limited to, the dischargeablity of taxes the potential impact that a divorce may have on the bankruptcy process. It is often wise to seek professional legal counsel before moving forward with bankruptcy to help review the impact of these and other factors.