Bankruptcy is a painful process of letting go. Legally, it can become complicated when you don’t file for bankruptcy at the right time. The most prevalent circumstances under which one may file for bankruptcy are long and extended periods of unemployment, when your debts and dues seem to sky-rocket with no apparent solution, when you start selling your personal assets to repay dues and keep the business running or there are lawsuits filed against you for pending repayments. The reasons for declaring bankruptcy could be wide and varied and different for individuals and companies.
When faced with a grave financial crisis, and to decide whether bankruptcy is a good and probably the only option left, one must first honestly and objectively analyse the situation.
It also helps consider the alternatives that you may have, because bankruptcy is not for everyone. Legal opinion by Debt Advisors can be sought to analyse your financial position and explore the options ahead.
Bankruptcy is a long and complicated procedure. There is no point in throwing the towel before looking at the alternatives for bankruptcy. Some of them are
- Is there any other method of paying your bills? A second option of employment may help resolve your issues.
- Does your financial crisis look temporary or does it have any long-term implications? If your set-back looks temporary then you need not go ahead with bankruptcy options, because one must remember that the court takes into consideration not only the present income, but the prospective income in the future, as well. Get this cleared before you rush into bankruptcy.
- Explore the option of directly negotiating with the creditors’, under proper legal guidance. There is always a possibility of lenders’ modifying the loan repayment structure if your credit and goodwill has been flawless in the past.
- Often, credit counselling with a good agency may leave you with positive alternatives and realistic planning and budgeting rather than resort to bankruptcy.
Having explored the possible alternatives, consider whether bankruptcy is the only option left. The court will consider bankruptcy only under exceptional and difficult circumstances as the only possibility ahead. The timing for declaring bankruptcy plays an important role here.
If there is any benefit in delaying bankruptcy, such an option should be explored first. The court may not consider your bankruptcy petition if there is a sudden increase in revenue or income in the recent past. The court usually takes an average of the incomes over a certain period. If you have been compensated for a job that you lost, this sudden spurt in income could work against your favour, if you intend to declare bankruptcy soon. So, a delay is beneficial in such a circumstance.
If your selling off assets fetches you more income / revenue than the court auctioning them, then go for the former and delay your decision to file for bankruptcy.
The court will not allow any debt to be added to the list already mentioned in the bankruptcy petition. In simple words, you cannot modify the list of debts that you wish to be discharged of. Therefore, it is prudence to delay your bankruptcy appeal until all your debts and foreclosures have surfaced.
How does one know if bankruptcy is the only option left?
Bankruptcy is the only option left if the alternatives and delay tactics do not mitigate your financial crisis and the debts seem to be on the increase rather than show a decline.
It is typically the only possibility when your income is garnished.
What is the meaning of income being garnished? When lenders can get a legal order to directly access your income by arranging with your bank or employer, such a scenario is known as income being garnished. This is a very critical situation which could lead to additional financial problems.
There are other circumstances, which are reason enough for declaring bankruptcy. Some of them are borrowing money for your everyday necessities, or repaying dues by incurring additional debt and your interest payments having already risen to dangerous levels because of missed payments.
When debts eat into your retirement funds, then bankruptcy may be the only best option to start afresh.
When is the right time to declare bankruptcy?
There is a myth that people who are completely broke are the only ones eligible to declare bankruptcy. While this may be true to a certain extent, it is wise to declare bankruptcy while you still have some savings left. Once a bankruptcy petition has been filed, your lenders or creditors will be notified and they may reduce your credit limits. In such a scenario, some liquid cash is beneficial for taking care of your necessities, after you have filed for bankruptcy.
Bankruptcy is a big step. Consider all possibilities and get an objective assessment done early-on to mitigate your monetary crisis and mental stress to some extent.