Bankruptcy can offer individuals and businesses a meaningful opportunity to regain control of overwhelming debt and move toward a fresh financial start. However, knowing when to consider filing is often the first—and most important—step. From relying on credit for basic necessities to facing creditor calls, foreclosure threats, or wage garnishment, certain warning signs may indicate that it is time to speak with a bankruptcy attorney.
Below, KingSpry’s Bankruptcy Law Attorney, Eric J. Filer, Esq., highlights common indicators that bankruptcy may be worth exploring and explains why early legal guidance can help prospective filers understand their options before financial pressures become more difficult to manage.
Relying on Credit to Cover Basic Necessities.
Consistently relying on credit cards to cover basic necessities, such as groceries, gas, clothing, utilities, and rent, is an indicator of insolvency. While using a credit card to make routine purchases does not automatically mean someone should file for bankruptcy, it may be a warning sign to individuals who rely on credit to purchase these items. Relying on credit to meet basic needs is an indicator that one’s income is no longer adequate to cover their daily expenses.
Unable to Make Credit Card Payments.
Similarly, individuals who are only able to make minimum payments may need to consider filing. In these cases, a debtor’s monthly balance will keep increasing, and it will become very difficult to pay off the credit balance in full. This is especially true for individuals who are already struggling to make minimum payments, are routinely missing payments, and have a credit balance exceeding their monthly income.
Unsecured Debt is Piling Up.
Unsecured debt is a loan or line of credit that is not backed by collateral. Credit card debt, medical bills, and utility bills are common unsecured debts. These types of debts are particularly important to a prospective filer, because they may be eligible for discharge in a bankruptcy proceeding. When debts are discharged, the filer is given a fresh start, and creditors can no longer go after them for collection.
Using Retirement Savings to Pay Off Dischargeable Debts.
Many debtors mistakenly drain their retirement accounts before going to a bankruptcy attorney for help. Oftentimes, this is unnecessary, because retirement accounts are protected under federal exemptions. This means a debtor may be able to keep their retirement account assets even after their bankruptcy case ends.
Accordingly, using retirement funds to pay off dischargeable debts is unnecessary and could be detrimental to an individual’s long-term financial security. A bankruptcy attorney can help prospective filers understand these options and avoid unintended consequences.
Threatened With Legal Action.
If creditors have threatened or started taking legal action, it is a clear sign that it is time to seek help. For example, a mortgage lender may seize a borrower’s home because they have failed to make their mortgage payments. Similarly, a lender may seize a car, truck, or motorcycle because the borrower defaulted on their loan or lease agreement.
Debtors may also experience wage garnishment, which is a legal procedure where a court orders the employer to withhold a portion of the employee’s earnings to pay off their debts. In turn, wage garnishment makes it extremely difficult to pay for life’s basic necessities and other debts. This can create a cycle of debt that is extremely hard to get out of.
Once legal action has been threatened or initiated, it is important to seek legal counsel. Filing for bankruptcy halts almost all debt collection actions through the “automatic stay,” freezing pending actions and preventing new ones from starting. An attorney will be able to explain this process and evaluate whether a prospective filer qualifies for bankruptcy.
Uncertainty about Your Financial Situation.
Individuals feeling uncertain about their financial situation and whether their debts are manageable are encouraged to speak with a bankruptcy attorney. A consultation is simply a conversation, not a commitment to file. A consultation can help prospective filers better understand their financial options and evaluate whether bankruptcy is right for them. In some cases, prospective filers may even learn that bankruptcy is not right for them after all—but getting this information early on can prevent a larger financial problem in the future.
