At What Point Should you File for Bankruptcy?
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?