Bankruptcy is a term that describes the legal standing of an individual or company that cannot pay creditors the debts they have accumulated over time. In these troublesome situations, entities and individuals have the option to file for bankruptcy and either liquidate their non-exempt assets to repay debts or, adjust their debts using a repayment plan. Although filing for bankruptcy is never apart of one’s financial goals, sometimes, it’s necessary to do in order to get your finances back on track. While filing for bankruptcy seems like the obvious answer, many push it off or delay it due to the connotations that are associated with this process. Many see it in a negative light, as a sense of personal and financial failure. However, what they don’t realize is by pushing this process back, they are only hurting their finances even more.
The Dangerous Waiting Game
In a 2018 law review study, research showed that those who waited to file for bankruptcy struggled more financially. By the time they finally filed, their financial life–as well as their own well-being–were even more damaged than before. By waiting, they defeat the purpose of the lifeline that bankruptcy can provide them with.
The period of time before one files for bankruptcy is commonly referred to as the ‘sweatbox’. During this time, individuals are dealing with the complete depletion of their assets while dealing with debt collection lawsuits. In the most unfortunate of circumstances, many will stay in the sweatbox for years before fully dealing with their debt. In a report by the Notre Dame Law Review using data from the Consumer Bankruptcy Project, they found that from the 3,200 bankruptcy cases surveyed between 2013 and 2016, nearly 66% endured the sweatbox period for over two years before filing. Approximately one-third waited five years or longer. Unfortunately, the longer these individuals or corporations stay in the ‘sweatbox’, the worse their overall financial situation becomes. For example, long-time strugglers are estimated to have one-half of the median assets compared to those who didn’t wait more than two years to file for bankruptcy. Additionally, the debt-to-income ratio of these ‘sweatboxers’ is well over 40% higher. By waiting it out, these individuals are only hurting themselves more and reducing the possibility of achieving the fresh start they so desperately need.
Why You Should Act Fast
One of the main reasons that individuals wait so long to file bankruptcy is due to the negative stigma associated with filing. However, by waiting, they are only making it much harder to gain financial stability after filing. While filing for bankruptcy is never fun, it’s quite essential for those who are faced with insurmountable debt. Acting fast and filing for bankruptcy in a timely fashion is the best way to ensure that you will get on a better financial track in the future. If you are struggling with debt, but are unsure if bankruptcy is the best option for you, here are a few questions to ask yourself:
- Are you forgoing any life essentials?
- Do your debts total more than 40% of your income?
- Are you using debts to pay off your other debts?
If you answered yes to any of these questions, filing for bankruptcy is most likely the best option for you. The first step in this important process is to consult with a bankruptcy attorney. They will be able to better inform you of what to expect during this process and how it can truly improve your credit score and financial future.
This post was written by Loan Lawyers. Loan Lawyers is a team of experienced and aggressive consumer rights litigation and trial attorneys in South Florida helping clients throughout the state of Florida.