When is the right time to file personal bankruptcy? This is a personal question that must be answered on a case by case basis. My general thought is that if a person can bail himself out of debt within a period of six months, he should not file a bankruptcy. The hit on his credit rating will not be worth the fresh start. On the other hand, if the person cannot bail out within six months and the prospects for getting out of debt seem bleak, then filing Chapter 7 bankruptcy is probably the better idea.
Many of my clients worry about their credit after filing bankruptcy. They worry about getting financing for an auto, a house or even an apartment. What they fail to consider is that they cannot get credit now under their current financial situation. They must correct the negative credit information, get out from under their debt and try to re-establish credit in the future. It usually takes approximately two years to qualify for a decent mortgage after filing Chapter 7 bankruptcy. One can obtain an auto loan within 120 days of filing a bankruptcy.
One can lease an apartment immediately upon a showing of an ability to pay the rent along with a modest security deposit. Thus, there is a life after bankruptcy. In fact, as many of my client will attest, a pretty darn good life.
A life free from creditor harassment. A life full of opportunity to start anew instead of a life of down and outs. One must make that tough decision to self-evaluate their financial situation.
Can the person continue to live under the same financial conditions day after day? Is there a light at the end of the tunnel? Does the person even know that he is in the tunnel? Another factor to consider is the type of debt that one has. If the debt is exclusively student loans, a bankruptcy will not help. Student loans survive a bankruptcy filing and are generally held to be non-dischargeable. If the debt is for past due maintenance, alimony or support, do not consider a Chapter 7 bankruptcy. The debt will simply not be eliminated.
However, if the debt is mostly unsecured debts, such as credit card debt, personal loans, services and utilities, then Chapter 7 bankruptcy may be a good option. To qualify under the current laws, a person must be either earning less than the median amount for a family of his size or qualify under the strict means test. In essence, if someone has the ability to repay all or a portion of his debts, the court will mandate that it happen.
If someone attempts to file a Chapter 7 bankruptcy case, despite his ability to repay, the case will likely be dismissed by the United States' Trustee.
David M. Siegel is the author of Chapter 7 Success: The Complete Guide to Surviving Personal Bankruptcy. He is a member of the American Bankruptcy Institute and currently practices bankruptcy law in Chicago and its surrounding suburbs. Chapter 7 Bankruptcy
