Filing for bankruptcy is generally viewed as an admission of personal and financial failure. While many individuals try hard to avoid it, they end up paying the price for waiting.
Ultimately, the longer people wait to file bankruptcy, the more they struggle. By the time these people declare bankruptcy, their well-being and financial life are negatively impacted, undermining the fresh start the bankruptcy legal tool provides them.
Bankruptcy lawyers in Scottsdale explain the following reasons as to why waiting to file bankruptcy can be so damaging in addition to precisely when you should consider filing.
Why waiting is draining
The time frame prior to a person filing for bankruptcy is sometimes referred to as the financial “sweatbox.” This is the period when people are facing legitimate asset depletion, debt collection lawsuits, and avoiding necessities like food to avoid filing bankruptcy.
Unfortunately, most people sweat it out for years before truly coming to terms with their debt. The misery of the sweatbox is an increasingly common American experience.
“Long strugglers” are denoted as those who endure the sweatbox for two years or longer. Shockingly, around 30% of people wait five years or longer to file for bankruptcy.
It’s imperative to know that the longer people linger in the sweatbox, the worst their overall financial situation becomes. For example:
- Long strugglers have 50% of the median assets compared with other debtors, or those who didn’t wait two or more years to file bankruptcy.
- The median debt-to-income ratio of long strugglers is over 40% higher than other debtors.
- Around half of long strugglers face debt collection lawsuits.
The stigma against filing and dedication to paying debts are part of what keep people from filing bankruptcy. Having said that, bankruptcy law gives the honest but unfortunate debtor a fresh and new start. This is important to understand.
When to consider bankruptcy
Many people who are in danger of filing for bankruptcy note that they wish they had reached out for help sooner. You should reach out to a credit counseling agency as soon as you begin to feel stress.
Let’s take a look at some factors that can help you determine if bankruptcy is right for you:
- Your debts are more than 40% of your income
- You’re using debt to pay for other debts
- Your debts are ones that could be wiped out in bankruptcy
- You’re forgoing core life essentials
As you might know, the two most common forms of consumer bankruptcy are Chapter 7 and Chapter 13. Which is best for you depends on your specific financial situation. Speak with a bankruptcy lawyer and nonprofit credit counselor if you are considering filing. If you do file for bankruptcy, however, it is certainly not the end of your financial life. To the contrary, it’s a way to generate a fresh start.