When's the Right Time to Declare Bankruptcy?


No one relishes the idea of filing for bankruptcy. Usually, bankruptcy is a last resort after a long run of financial hardship. What are some common some signs that bankruptcy makes sense? 

There are many specific scenarios that lead to bankruptcy (many are listed on my Massachusetts Bankruptcy web site), but the bottom line is that the need for bankruptcy begins with being unable to pay your debts. Yes, it's obvious, but those people who can not pay minimum debt payments as they come due usually need bankruptcy protection. 

Fortunately, the bankruptcy laws allow people to maintain a reasonable and safe lifestyle while reorganizing or receiving a complete discharge of their debts.

Many people are frightened of bankruptcy, which is natural, but often bankruptcy is the only option that can make a dramatic improvement in a person's financial life. It's sensible to investigate alternatives, such as credit counseling, debt settlement, and the like. 

However, although these programs usually are promoted as safer, easier, or cheaper than bankruptcy, this is usually not the case--and often such programs are outright scams preying on uninformed desperation. Bankruptcy is the remedy that the law provides for people who can not pay their debts.

One caveat: bankruptcy is usually not appropriate for people who need credit in the immediate future. Chapter 7 bankruptcy stays on your credit report for 10 years; Chapter 13 for 7 years. As time goes by after a bankruptcy, the weight given to it diminishes. 

However, bankruptcy will remain a bad credit item for a while after a case is filed.  People are usually able to obtain credit while a bankruptcy remains on their credit report, but they usually have to pay a higher interest rate than a person with better credit. It warrants mention, however, that most people already have damaged credit by the time they file bankruptcy.

The first step when faced with a debt problem is to own up to it. Examine your options and ongoing ability to pay debts as they come due. If you see default looming unavoidably on the horizon, the smart move is to see a bankruptcy lawyer sooner rather than later.

Good luck.

Nicholas F. Ortiz
Attorney & Counselor At Law
Law Office of Nicholas F. Ortiz, P.C.
The Massachusetts Bankruptcy Web Site: www.bkmass.com


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