The biggest bankruptcy mistake has nothing to do with choice of chapter, exemptions, disclosure, or attorneys. It has to do with timing.
The biggest bankruptcy mistake is waiting too long to consider bankruptcy.
Time is seldom your friend
What’s wrong with letting time pass before making a momentous decision? Doesn’t time heal most wounds? No, in most cases, lots is wrong.
Those who wait to even gather information about bankruptcy usually continue to make minimum payments on debts they can never pay off. Money that could have gone for more critical needs.
They allow non dischargeable interest to build up on tax liens.
They raid retirmement savings or exempt home equity to preserve the (miserable) status quo.
They let judgment liens age beyond the time when those liens could be avoided as preferences.
The nonfinancial cost of waiting
The benefits of bankruptcy are not just dollars and cents issues. The emotional cost of dealing with overwhelming debt is huge and under-rated.
Debt robs you of sleep, peace at home, and interferes with interpersonal relationships. It saps creativity and energy.
Just as important, worry over debt is a health issue. AND being in debt lowers your IQ. That’s not that you are stupid for getting into debt; sometimes that’s beyond your control. It’s the existence of debt that interfers with mental processes, lowering your ability to make good decisions.
Waiting for a crisis limits your choices
Apart from the emotional toll of lingering in debt, when there is a crisis that makes it crystal-clear that you need bankruptcy protection, you may not be able to find the right lawyer at the 11th hour.
Clients who wait til the last minute to seek bankruptcy are not generally perceived by capable lawyers as good clients. Is someone who’s denied reality up to this point going to be responsive to their bankruptcy lawyer on the timelines of the law? Often, no.
Engaging a bankruptcy lawyer is going to require a retainer. Living paycheck to paycheck, trying to stay afloat, may leave you without the cash that hiring counsel requires.
Avoid the biggest bankruptcy mistake
The key to errorless financial relief is good information. As soon as you suspect the situation is beyond your ability to turn it around, see an experienced bankruptcy lawyer.
Gather information, understand your options, and explore timing issues. Seeing a bankruptcy lawyer doesn’t commit you to filing.
Sometimes, waiting is beneficial. Sometimes, you don’t need bankruptcy because everything you have is beyond the reach of creditors.
But you won’t know for sure without tapping the expertise of a bankruptcy lawyer.
