I get this question a lot. When is the right time to think about bankruptcy? Should I even be considering it if I’m current with everything? I think it really depends on circumstances and if you can project what the next couple of months forward will look like.
Can I file if I'm Current on my Debt?
You can file bankruptcy whether you are current on your debt, whether it’s still with the bank lender but you are behind, whether it’s in collections or whether it’s already been sued out by a law firm. It doesn’t matter at what stage you are at, you can file bankruptcy at any of these stages.
If you are current on all your payments but you have had a significant change in circumstances, that could be a time to look into filing bankruptcy. If you lost your job, or separated from a spouse, or any reason to have a significant change in income then it probably doesn’t make sense to continue to make the same monthly payment you were making before on the debt. You will most likely either struggle to keep up with the payment or have to cut back in other areas, like your retirement savings etc. If you can see that the minimum monthly payment is not sustainable it could be a good time to call our office.
Filing because of Change in Income
If you are current on your payments but you have a temporary change in income, you are going to be laid off for the winter months for example, or were on unpaid sick leave for a few weeks, you can still consider filing a bankruptcy but there may be a couple other options to look into as well. Most credit cards have an option of a temporary forbearance in which if you are eligible you can ask to make interest only payments for a couple months. You may see after that temporary forbearance that your minimum payments are now higher than they were previously. Trying to settle the debt at this point will most likely be unsuccessful, creditors wait until you are behind on payments, usually at least 3 months before offering anything more in terms of relief on the payment. But you can always try, especially if it’s a small bank handling the debt.
I think exploring bankruptcy while you are still current on payments can make a lot of sense. We can figure out going forward if making payments is sustainable or if something else should be tried. We can also do some bankruptcy planning and talk about if you are thinking bankruptcy may have to be the option, what is the best way to protect your assets and not fall into any traps in terms of things like preference payments or fraudulent transfers. Even if you don’t see bankruptcy in your future or even in the next 6 months, it can still make sense to equip you with the information if it ever does present itself as the best available option.
