Knowing When to Say “When”…

We sat there in my office, large stack of bills on one side of the table and a half dozen judgments on the other side.  The credit card bills had not been paid in some time and the judgments were a few months old.  After some preliminary discussion on the debts and bankruptcy process the person sitting across from me asked if I thought bankruptcy was a good option.  They expressed how much they didn’t want to file for bankruptcy and hoped to deal with their debt problem another way.  Problem was, the time to pursue other options had long passed and they simply didn’t have the money available to try and settle the debt.

As I often say, no one wants to file for bankruptcy, but there comes a time when you must know when to way “when”.  The following are three indicators that it may be time to bite the bullet and file your bankruptcy case:

#1 – You Have Been Served with Multiple Law Suits (or even one big one!)

Over the years I have learned two things about the court process when it comes to civil cases: (1) it is outrageously expensive. And (2) it is not a good way to solve problems.  Rarely is anyone happy after the case is over.  If you are facing a lawsuit or even worse if you have multiple lawsuits you are trying to fight it is worth considering a bankruptcy filing.  The bankruptcy filing will not only stop the lawsuit from proceeding but discharge (eliminate) the underlying debt.

#2 – High Credit Card/Medical Debt and Not Making Monthly Payments

Bankruptcy should also be considered if you are dealing with large amounts of credit card debt or medical bills and are unable to make even the monthly minimum payment.  How much is a “large amount”?  It all depends on your financial situation.  I have had clients before who have about $10,000 in credit card debt and it might as well be $10 million, because based upon their current income and likely income in the future it is very unlikely that they will ever be able to pay those debts back.  On the other hand I have had clients with $75,000 in credit card and their income is sufficient that they could pay the debt off in a relatively short time if they devoted their resources to it.

#3 – Thinking of Draining Your Retirement Account to Pay Debt

If you have a lot of credit card debt or any type of debt and are thinking of emptying your retirement account to settle those debts it is a good idea to speak with a bankruptcy attorney first.  If you are far away from retirement and the amount needed to take care of your debts is minimal this might not be a bad idea.  However, if you are near retirement or if it will take all of your retirement savings to pay the debts you may want to consider bankruptcy.

The reason being is that most retirement funds are protected during the bankruptcy process.  Too often I have seen people spend every penny of their 401(k) trying to settle credit card debt only to end up filing bankruptcy anyway.  That is a worst case scenario because not only are you having to file bankruptcy, the retirement accounts that would have been protected are now gone.

Almost without exception the people I meet with want to pay their debts.  There are situations, however, when it is wise to seek out financial counsel – including bankruptcy counsel- on how to deal with your debts.  While you may not want to file for bankruptcy it may be your best financial option.