It is Better to File Bankruptcy Sooner than Later

calendarThe main reason to get a bankruptcy consultation is to find out your options and figure out the best one. What about waiting? Is that an option? Why take action now?

What many people do not know is that IF you are going to have to file for bankruptcy, it is much, much better to do it sooner rather than later. People who hold on and keep struggling often make some major mistakes they could have avoided by filing bankruptcy sooner.

Holding on and barely making it is like treading water when your boat sinks. You stay afloat, but barely. And you will never make it safely to shore. The longer you tread water without moving towards shore, the more tired you become, and the more likely it is that you will drown.

First of all, it is never too early to look at your options. How can you decide whether you should try a debt consolidation plan, or a mortgage modification, or a short sale, unless you compare it to your bankruptcy options? Bankruptcy is sort of the ultimate option. It will wipe out those debts once and for all. You need to know if you can do it, and what will happen, before you can make an intelligent, informed decision about your other options.

Discover everything you need to know about filing bankruptcy in Maryland by reading our Free Legal Consumer Guide here.

We are big fans of knowing your options. Only then you can make the best decision for you and your family. Frankly, you owe it to the ones affected by this situation to at least know what your options are, and maybe do some planning in case you cannot stay afloat.

Not Needing Bankruptcy Is The Best Option

Of course, it is much better not to file bankruptcy at all. If you do not need a bankruptcy, we would never encourage it. We always provide our clients with every option. But the fact is that many people do need to file for bankruptcy, and they are only hurting themselves by delaying the inevitable.

Bankruptcy is a tool like any other. It is only useful when you actually need to accomplish a specific goal. You don’t need a pipe wrench unless you have a leaky pipe.

Needless to say, people hate to even think about bankruptcy. That is why people delay it. Inevitably, clients tell us they wish they had come to see us a year or more ago. Better to talk to us now, and find out you should try a debt restructuring or loan modification, than to come to us after you have cashed in the last of the retirement savings from your IRA, 401k, or Thrift Savings Plan.

There are five main reasons to file bankruptcy sooner rather than later. Here they are:

(1) Make it easier to save your home.

It is a lot easier to save your house in a bankruptcy when you are only six months behind on your mortgage, than it is when you are 2 years behind. You have to pay back those arrears in your Chapter 13 plan. If you wait too long, and your arrears build up too high, it may become too much to repay, and impossible to save your home.

(2) Don’t throw money down the drain.

If you are going to file a bankruptcy anyway, every dollar you send to your creditors now is a dollar thrown away forever. If you have to file bankruptcy, any payments made to creditors should be made through the chapter 13 plan, so it “counts” in paying off the debt under the plan and getting you closer to the day you get that bankruptcy discharge. Otherwise, it is money down the drain. The repayment plan will not take into consideration any payments you made to reduce the debt before you filed the bankruptcy petition.

(3) You can save your retirement plans in a bankruptcy.

Most retirement plans are not considered in your bankruptcy, and cannot be touched by the bankruptcy trustee. You can shield them so they are there for you when you get your discharge. Don’t spend them now trying to stay afloat, only to file bankruptcy anyway. If that happens, the retirement plan money is lost forever. They won’t give it back to you!

(4) Bankruptcy is often a three to five year process.

If you have to file a Chapter 13 bankruptcy, you will be in a three or five year repayment plan (usually five years). The sooner that plan starts – the sooner it ends.

They bankruptcy trustee will put you on a strict budget for either three or five years (depending on your income) after the plan is approved. The bankruptcy trustee will use any income over and above your approved monthly budget to pay back your creditors.

At the end of the plan, any remaining debts will be discharged. Your creditors will only get paid the money they get during the five years the plan is in place, and you will get a fresh start in your finances once that plan is completed.

Obviously, the sooner you start that five year clock ticking – the better. You will only get five years older and five years closer to retirement while that plan is in place. The longer you wait, the worse it is. So if you do have to file for bankruptcy, and look forward to life without your debts, it is much, much better to do it sooner rather than later.

(5) Rebuild your credit sooner.

Another good reason to file bankruptcy sooner rather than later is to get on track to rebuild your credit. With only two or three years of paying your bills on time, your credit will be re-established and you can borrow money again. You may pay a slightly higher interest rate than someone who never filed a bankruptcy, but you will get a loan that you can afford.

Before that can happen, you have to get that bankruptcy behind you first. So the sooner you get your bankruptcy filed and obtain your discharge, the sooner you can start rebuilding your credit.

If you want to find out if bankruptcy is a good option for you, contact us today to schedule a free consultation. 

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About Dave Gormley

Dave Gormley is a Partner and the head of our bankruptcy department. He has been doing bankruptcy work for over 10 years, since before the bankruptcy law changed dramatically in 2005. He has been active in stopping the wave of foreclosures since 2008 when the financial crisis hit. There isn’t much related to bankruptcy or foreclosure he has not already seen. He is admitted to practice in Maryland and the Federal Courts, including the U.S. Bankruptcy Court and the U.S. Supreme Court.