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At What Point Should you File for Bankruptcy?

Updated on January 25, 2011

Heed the Warning Signs

There is no one “tell” to say it is time for filing bankruptcy. However, there are warning signs that start popping up. They are a group of "Do not do such and such.” What is a do not? The definition are issues such as liens, being sued and having wages garnished as a result, and possibly dipping into retirement accounts in order to pay the debt.

Constant Creditor Harassment is the First Sign

Missing a couple of payments starts the pressure from creditors or their collection agencies. They do not scruple to get what they want, which is money. Unfortunately, the debtor may not have it. It is also highly possible that the debtor will not be able to pay their debt for some time to come due to a loss of income. At this stage, negotiating with collectors is useless. The only option at this point is for the debtor to turn into a bankruptcy petitioner, thus gaining the relief of the automatic stay. From there on out, creditors become permanently silenced.

Do not Wait for Creditors to Start Suing

A creditor suing the debtor means that it is the end game for the debtor. It is difficult to avoid a judgment that garnishes wages in this situation. Monies will be deducted from the check at a certain percentage until the agreed upon balance is satisfied. Going through this process with one creditor may not be such a bad thing, if the debtor can survive with that amount of money taken out. However, when it is a case of multiple creditors suing, filing for bankruptcy starts to make sense.

Avoid having Property Attached by a Lien

Do not wait for liens to be attached to property before filing. Removing them requires a separate motion by the lawyer after filing, but do not wait to get to that point. There will be plenty of warning via process servers. Paperwork will provide the first court date. Having lien with a small dollar amount placed against the home is livable. What is not livable is when it is a large amount. The seller will see that much less money realized after the sale of the attached property. This does no one any good, including any potential heirs

Do Not File for Tax Liens Alone

Most, but not all liens are removable through bankruptcy.  If the IRS has placed a lien on a home or other object, do not bother filing unless there are other attendant issues. Bankruptcy will not remove a tax lien, nor will it eliminate most tax issues. Some can go away in bankruptcy, but they have to be old. The IRS does not look kindly upon people who do not pay their taxes, so it may be a better idea to work directly with them. The alternative is to deal with the unique form of harassment that the IRS can legally dole out.

Do not Touch Retirement Funds

The largest issue that gets many a potential filer into trouble is breaking into the piggy bank. It is the biggest sign that says that it is time to pull the trigger. Raiding retirement funds to pay off mounting debts is throwing good money after bad. All types of retirement accounts are safe in a bankruptcy. Trustees cannot touch pensions, IRAs, 401k, and any others. Why throw away the security of old age for unsecured debt now?


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    • Denise Handlon profile image

      Denise Handlon 7 years ago from North Carolina

      Welcome to Hubpages, Michelle.

    • Howard S. profile image

      Howard S. 7 years ago from Dallas, Texas, and Asia

      Interesting topic--one I never would have thought much about until my son recently married someone with a bankruptcy in her history.

      Congrats on the win! I think you joined the day before I did--and you've got more followers--you're beating me!

    • oceansnsunsets profile image

      Paula 7 years ago from The Midwest, USA

      Congratulations on your daily drawing win for the contest, Michele. Welcome to Hubpages as well!

    • arthurchappell profile image

      arthurchappell 7 years ago from Manchester, England

      found myself perilously close to much of this - not back from the edge yet so this is very good advice indeed

    • Dorsi profile image

      Dorsi Diaz 7 years ago from The San Francisco Bay Area

      Great advice and well written. I'm your new fan Michele!

    • Michele Goudie profile image

      Michele Goudie 7 years ago from Chicago

      I figured it out - LOL! Thanks all!

      My goal is to take the scary out of bankruptcy and demonstrate that it's not as bad as it seems. By all means, if it can be avoided, avoid it. But if life hands out lemons, well, there's a way to make lemonade out of it.

    • stephhicks68 profile image

      Stephanie Hicks 7 years ago from Bend, Oregon

      Congratulations - what a great way to start writing at HubPages! Good advice and direction for people considering bankruptcy.

    • Loren's Gem profile image

      Loren's Gem 7 years ago from Istanbul, Turkey

      Nice share. Congrats on the win and welcome to Hubpages! :-)

    • LillyGrillzit profile image

      Lori J Latimer 7 years ago from The River Valley, Arkansas

      Way to go! Welcome to HubPages

    • Michele Goudie profile image

      Michele Goudie 7 years ago from Chicago

      I'll start out by saying that yes, I'm a real blond. So, now having said that, did I get featured somewhere? I deleted a comment yesterday thinking that the poster had commented on the wrong hub. Sorry about that!

      Color me confused! LOL

    • emdi profile image

      emdi 7 years ago

      Great advice.

    • Purple Perl profile image

      Purple Perl 7 years ago from Bangalore,India

      Hey, welcome to hubpages! Congrats too! You must be elated!

    • Bostonfamily profile image

      Bostonfamily 7 years ago

      Good advice hopefully I never be at that point.