How Do You Know When It's Time To File?

There is no perfect answer as to when to file for bankruptcy.  The answer will depend upon many factors and upon the particular person involved.  As a general rule, I have used a six month time frame as a reference point for deciding if it is time to file.  For example, let’s take a single person with steady income who has accumulated a significant amount of credit card debt.  If that person were to cease using the credit cards and budget his living expenses properly, could he repay the debt owed on the credit cards within a six month period?  If so, then repaying the debt would be more beneficial in the long term than filing for bankruptcy.  Alternatively, if struggling with a strict budget for six months would only provide an amount to sustain the minimum payments due, then bankruptcy would seem to be the more realistic option.

Often, a person will file for bankruptcy after years of struggling to pay down his debt.  While this may sound like a courageous and noble attempt to do the right thing, it only prolonged the inevitable filing.  People struggle with the knowledge that a filing might be the best option, however, are resigned to solve their financial problem on their own.  Foolish pride may derail a wiser choice to gain a fresh start.  People have withdrawn money from retirement accounts that they could have left untouched.  Others have borrowed from family and friends only to disappoint them when they received notice of the bankruptcy filing instead of repayment checks.    

Although the answer is not the same for everyone, the six month bailout time frame seems to be a realistic measure.  In many cases, the answer is obvious.  When the amount of debt exceeds one's yearly income, filing is necessary and not optional.

Knowing the right time to file will end the stress of being without money and get one on the road to recovery quicker.  What a relief it is once the monthly statements seeking minimum payments stop arriving at the door.  The telephone calls begin to be people that you want to talk to again and not some stranger telling you to work harder.  The garnishment on your check disappears and your hard earned money remains yours.  You can actually have enough money for rent and living expenses.  In some cases, you can even save money.  However, none of this can happen until you decide it's time to file bankruptcy. 

Back to Bankruptcy Basics