The Dangers of Waiting to File for Bankruptcy
September 3rd, 2018 by Bunch & Brock
Many people will do anything to avoid filing for bankruptcy. The word “bankruptcy” comes with a stigma, and, of course, there are repercussions for your credit score. But, if all signs are indicating you will be unable to keep up with your debts, waiting to file for bankruptcy can be a bad decision.
Filing for Chapter 7 or Chapter 13 bankruptcy protection immediately halts litigation action against you, stops foreclosure proceedings and staves off garnishment of your wages. In some cases, you can protect assets you would otherwise lose, such as a car or house, and you can avoid draining your bank account until you are completely without resources and options.
A 2018 Notre Dame Law Review report found that people who wait too long to file bankruptcy end up suffering much more profoundly. The report’s data was taken from a Consumer Bankruptcy Project (CBP) study, which showed that those who waited two years or more, the “long strugglers,” ended up with half the median assets of debtors who filed for bankruptcy sooner. By the time they sought bankruptcy protection, the debt-to-income ratio for these individuals was over 40% higher, and they faced more collection lawsuits and liens against their homes.
The report revealed that 66% of surveyed participants fell into the long-struggling category, and that these people were willing to go to extremes to avoid filing for bankruptcy. In some cases, this meant forgoing food and other essentials. Still, in the end, many of these determined souls had depleted assets that could have helped them rebuild their lives and regain financial solvency.
The report also that showed long strugglers were less likely to own a home when they filed for bankruptcy, and those who did often had an involuntary lien against the house. If they had filed for Chapter 13 bankruptcy earlier, some long strugglers could have saved their home and discharged the lien.
Typical Pre-Bankruptcy Scenario
There are many reasons responsible people begin to struggle financially. Loss of a job, serious injury or illness, or the mistake of taking on too much debt — all can contribute to a downward spiral that can lead to financial disaster.
In a typical scenario, the individual or couple begins to defer bills and charge basic expenses to credit cards. There may be “paycheck loans” taken out at very high interest rates. Bounced checks and missed payments bring penalties and assessments, and credit card balances rise. With minimum payments made on these cards, the balance continues to grow exponentially.
This scenario can be extremely stressful, affecting relationships and even impacting physical well-being. In the CBP study, “long strugglers” went without medicine, health insurance, and medical and dental appointments. Ironically, escalating health problems only make it more difficult to deal with the stress of mounting debt, and more difficult to bring in needed income. Divorce, a known casualty of unrelenting financial stress, divides the household and creates additional expenses.
Why People Struggle Too Long
Shame and the fear of the unknown are common reasons why people delay bankruptcy. But, as shown by the information above, delaying the inevitable will often just make the situation worse. In addition, fear about the ramifications of bankruptcy may be overblown. As discussed in our credit rebound blog, the credit scores of bankruptcy filers can rise surprisingly quickly.
If you are drowning in debt and considering bankruptcy, talk to Bunch & Brock sooner rather than later. Our compassionate, knowledgeable attorneys can assess your situation and explain your best options today.