Why Delaying Bankruptcy is a Bad Idea

Many people facing bankruptcy look at it as a personal failure. Because of this, many individuals that could benefit greatly from filing for bankruptcy avoid it, digging themselves deeper and deeper into financial trouble. There can be a hefty price for waiting to file for bankruptcy (literally). Not only is financial struggle emotionally draining, the impact of long-term financial difficulty can severely damage your ability to bounce back. Here are three reasons why delaying bankruptcy is usually a bad idea:

1. Time in the “Sweatbox” is Draining

The time period immediately before filing for bankruptcy is known as the “sweatbox.” During this time, people experience an overwhelming increase in debt, the inability to pay for basic needs in order to avoid bankruptcy, and a lot of financial stress. Some people stay in the sweatbox for months – or even years! – before finally reconciling their financial issues.

The longer you wait to file for bankruptcy, the more your assets will be depleted, the higher your debt-to-income ratio is likely to climb, and the more likely you are to face debt collection lawsuits. All of this is very stressful which, over a long enough timeline, can cause lasting damage to your mental, emotional, and even physical health.

2. Depleting Assets is Unnecessary and Painful

When debtors view bankruptcy as a last option to be avoided at all costs, they become desperate to improve their financial situation by any means necessary. In order to do this, people will sell their valuables and property in order to pay off some debts. They may also give away possessions out of fear of losing them in a bankruptcy proceeding. It is also common behavior to dip into a valuable 401(k) or IRA to hold off creditors. DON’T DO THIS! Bankruptcy laws offer many exemptions to protect these assets. In many cases, it is possible to keep your house, your car, and your retirement savings intact when filing for bankruptcy.

3. Minor Improvements Can Backfire

Improving your financial situation—but not enough to allow you to return to a reasonable standard of living—can actually cause you to be ineligible for bankruptcy. You might be in a better spot than you were before, but if you still cannot get ahead of your debt and expenses, you may still need to file for bankruptcy.

Debtors who file for bankruptcy must pass a “means test,” which determines your eligibility for different kinds of bankruptcy. So, for instance, if you got a better job with more hours or better pay, you may no longer qualify for Chapter 7 bankruptcy in which you can discharge many of your debts outright. Even if Chapter 13 bankruptcy is the right choice for you, prolonging that decision can result in high monthly payments over a longer period of time to pay back all of your debts.

Remember: bankruptcy is meant to be a second chance for honest debtors down on their luck. Bankruptcy can be your chance to start your financial life over. Veitengruber Law is an experienced bankruptcy law firm in New Jersey. We’ve been working on NJ bankruptcy cases for a decade now, and our experience has taught us how to use bankruptcy as a tool to transform your life for the better. If you are struggling, don’t wait. Contact us today.