It’s human nature to wait and hope for the best. Your debt is overwhelming, but you tell yourself that things might turn around, or you’ll pick up some overtime. If you can juggle your finances for just one more month, surely things will get better.
Many people do everything they can to avoid bankruptcy because it feels final. But in some situations, waiting to file can actually make your financial situation much worse.
The situation can quickly escalate
When money gets tight, people often rely on credit cards to cover groceries, utilities or gas. However, revolving credit can easily balloon out of control. Additionally, using credit cards to stay afloat can backfire. Large charges or cash advances shortly before filing bankruptcy often raise legal issues. Creditors may argue that the charges were made with no intent for repayment; therefore, they shouldn’t be discharged.
Waiting too long to file for bankruptcy while increasing credit card balances can complicate what should be a straightforward case.
It’s also common for people to tap into retirement accounts to avoid filing bankruptcy. What most fail to realize is that retirement accounts are often protected in bankruptcy. Once you liquidate protected assets to pay unsecured debt, that protection is gone.
You could end up losing long-term financial security to temporarily delay the inevitable. Before cashing out your 401(k), it’s critical to understand whether bankruptcy can protect those assets instead.
Creditors may obtain a judgment to garnish your wages, which means they can take the lesser of:
- 25% of your disposable earnings, or
- The amount by which your weekly income exceeds 30 times the federal minimum wage
You were already behind on your payments, and now your paycheck is smaller.
Filing for bankruptcy triggers an automatic stop and immediately stops most wage garnishments. By waiting too long to file, you may lose months of income that could have gone toward necessities such as food and utilities.
Bankruptcy is not giving up, and it’s not a sign of failure. It’s simply a legal tool provided under federal law that allows people a reset when debt becomes unmanageable. Speak with a legal professional about your options.