No one wants to file for bankruptcy, but if you're heading in that direction, delaying the inevitable may only make things worse

 

I came across this article on the American Bankruptcy Institute and thought I would pass the first several paragraphs of the article along.  It was originally on the CBS News website, posted Nov. 20, 2024:

"No one wants to file for bankruptcy, but if you're heading in that direction, delaying the inevitable may only make things worse.

But those struggling to stay financially afloat should consider the option sooner rather than later, advise experts who study when and why people file.

"When a consumer feels financial pressure, the last thing on their mind is seeking bankruptcy protection," said Michael Hunter, vice president, business development, at Epiq Aacer, a provider of bankruptcy information and partner to the American Bankruptcy Institute, or ABI. Most people don't file until 18 to 24 months after they've incurred financial hardship, Hunter said.

Researchers, over decades of interviewing thousands of people who've declared personal bankruptcy, have found that about two-thirds of individual filers struggle with paying their debts for up to five years before seeking help.

"The common response is people are struggling with their debt for more than two years" before seeking a legal remedy, Robert Lawless, a professor at the University of Illinois College of Law, told CBS MoneyWatch.

"People misunderstand bankruptcy and wait too long to see a bankruptcy lawyer. Most people would benefit by going earlier," said Lawless, a co-principal investigator in the Consumer Bankruptcy Project, launched in 1981 by a group of academics including Senator Elizabeth Warren, D-Mass., a law school professor at the time.

When to file for bankruptcy

Because of the stigma and shame that Americans attach to bankruptcy, people turn to it as a last resort — oftentimes after they have plowed through retirement funds and other assets that would be have been shielded from creditors by filing for debt relief.

"If you are raiding pension or other retirement assets, that is a red flag," said Lawless, noting those funds are protected from creditors in bankruptcy. Borrowing money to cover current expenses is another warning sign, he offered.

"It makes sense to file if a creditor is going to be able to take away something you need," said Pamela Foohey, a professor of law at the University of Georgia School of Law in Athens. "If a person is dealing with a wage garnishment that is harming their lives, or if a lender is threatening to repossess your car. If there's no other way to get a car that will fit your budget, filing could be a way to keep your car, or keep your house."

Otherwise the broad answer is to first address how they might solve the cause of their financial distress before filing for bankruptcy. "It doesn't help to find a better-paying job if after bankruptcy more is going out than coming in," said Lawless.

"If you lost your job, file after you found a new job; if you have a health crisis, you file after you've gotten better to discharge all of the medical debt that you've racked up," said Foohey.

If someone undergoes a change in their family situation, whether it's a divorce or the birth of twins, she advises that they first figure out how they're going to manage going forward on a budget after the debt is discharged.

"Bankruptcy does one thing, it gets rid of debt. It doesn't find you a job, it doesn't put money in your pocket," said Lawless. ...."

Feel free to call me to discuss matters.  My number is:  320-252-4473.  Congress says I have to tell you that I am a debt relief agency and help people filed for bankruptcy.

They Were Ashamed About Their Debt. Bankruptcy Gave Them a Second Chance.

I came across an article in the New York Times by Rachel Bussel, (dated Nov. 4 2024) that I thought was worth sharing.  So the following is not original to me.  The article is longer.

Many people who should consider filing for bankruptcy avoid doing so out of shame or fear it could ruin their credit. But it can provide much-needed relief.

In my 20s, while attending law school at New York University by day and concerts by night, I racked up over $30,000 in credit card debt. I wasn’t thinking about my credit score; I was solely living in the moment.

 After three years, I left law school without graduating. The $40,000 salary for my administrative assistant day job barely covered rent and student loans. I made minimum payments on my credit cards, cringing as hefty interest rates ballooned my balance.

 A friend whom I confessed all this to advised me to “never declare bankruptcy,” citing a bad experience. He was older and, I assumed, wiser, so I took his words to heart, crossing that option off my list.

Instead, I consolidated my debt with a service that promised to streamline the repayment process. But because my monthly income wasn’t high enough to pay extra toward the principal, I didn’t make much headway after several years of making payments. So I researched bankruptcy options, discovered that I was eligible and decided to file. The process was far less painful than I had anticipated, wiping my debt slate clean.

I regret not filing sooner. Many people avoid filing for bankruptcy out of shame and embarrassment around their financial circumstances, because they receive poor advice or because they’re too proud. But bankruptcy may be a prudent option to eliminate burdensome debt, save a home from foreclosure and end collection calls

As always, if I can be of help discussing or dealing with your financial issues, call me at  320-252-4473

Sam Calvert

Congress requires me to say that I am a debt relief agency and help people file for relief under the Bankruptcy Code.