Timing is very important in bankruptcy cases. If distressed debtors file too early, they may not have fully exhausted all available non-bankruptcy remedies. However, if they wait too long, the case will probably be much more complicated, time-consuming, and expensive than it otherwise may have been.
Similarly, there is some groundwork to lay before filing bankruptcy, because such an act cannot be undertaken on a whim. Essentially, the procedure under the Bankruptcy Code is designed to limit relief to those that need it most, so limited judicial resources go to deserving families.
The Right Time to File
Bankruptcy timing largely depends on the type of debts that the consumer has and the type of relief needed.
Sometimes, debt becomes simply overwhelming, a condition that has almost nothing to do with personal spending habits. For example, although the exact figure is hotly disputed, there is no doubt that medical debt is a leading cause of bankruptcy filings. Other uncontrollable factors, such as job loss and business downturn, are not too far behind.
Some financial planners look to the ten-percent rule in these situations. If medical or other unsecured debt, like credit cards, exceeds more than ten percent of household income, most families will have to make significant sacrifices to have any hope of paying off the debt, and even then there is no guarantee. That’s because one unexpected financial storm can overturn even the most carefully-developed debt retirement plan.
Chapter 7 Bankruptcy eliminates medical and unsecured debt in as little as six months or so, giving you a fresh financial start.
Other consumers have issues with secured debts, such as mortgage payments. Although the proportion is often somewhat lower in many parts of the Midwest, it is not unusual for a monthly mortgage payment to be more than 40 percent of a family’s monthly income. So, after just one missed payment, many families are behind the proverbial eight-ball.
Because nearly all mortgage companies stop accepting partial payments after about 90 days, if you are more than two months behind on a mortgage, it is probably time to seriously consider bankruptcy. The same thing applies to car payments and other forms of secured debt, as many lenders are anxious to begin repossession, foreclosure, or other adverse procedures given any opportunity to do so.
Chapter 13 Bankruptcy guarantees families up to five years to catch up on secured debts, and as a bonus, any remaining unsecured debts are discharged at the end of the repayment period.
Chapter 7 debtors must have incomes less than the statewide average to successfully complete the mean test and qualify for filing. The figure varies by state and changes frequently, but currently, a family of four in Indiana must earn less than about $92,000 a year.
Although there is no exact formula, Chapter 13 debtors must have sufficient disposable income to make the monthly debt consolidation payment, and an experienced bankruptcy attorney can estimate this payment after you submit appropriate financial paperwork.
All debtors must also complete a credit counselling course and meet some other requirements.
Reach Out to Experienced Attorneys
Although there is no guarantee, effective planning usually makes for a smoother bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.