Really, who wants to file bankruptcy? Bankruptcy should always be the last option to solve a financial problem. Unfortunately, identifying the tipping point when bankruptcy becomes a good option is not always easy. Sometimes waiting too long to file bankruptcy further complicates matters and reduces the positive impact bankruptcy can have to rehabilitate your finances. Below are five reasons to consider filing bankruptcy sooner rather than later:
Reason #1: Avoid Collection Calls
Have you missed a creditor payment? Not to worry, your creditor will call you and remind you to pay your bill! How nice! That is, unless you are at work, or with friends, or with your parents. . . When you file bankruptcy, the bankruptcy automatic stay takes immediate effect and all creditor actions must stop. That includes stopping embarrassing and harassing telephone calls from creditors. Once your debt is discharged, the creditor is prohibited from ever contacting you again.
Reason #2: Avoid Further Damage to Your Credit Report
The more creditor payments you miss, the more negative items show up on your credit report. Those entries stay on your report for seven years and are not erased by a bankruptcy filing. Bankruptcy court’s automatic stay stops negative entries on your credit reports. A discharged debt is listed as “included in bankruptcy” with a zero balance.
Reason #3: Avoid Creditor Charge-Off
A creditor may charge-off a debt and take a business loss for tax purposes. When that happens the creditor is obligated to send a tax notice of debt forgiveness to you and the IRS. The IRS views this gift as a taxable gain and expects you to pay taxes on the charged off amount. This kind of recent tax debt is not dischargeable in bankruptcy! Consequently, it is much better to file bankruptcy before a debt is charged off by the creditor.
Reason #4: Avoid Vehicle Repossession
Most auto lenders have little issue with financing a person with a past bankruptcy, especially if the person has rehabilitated his or her credit. On the other hand, auto financing is more difficult with a repossession on your record. If you need to walk away from an upside-down vehicle, do it through bankruptcy. You can surrender the vehicle after you file and the debt will be discharged without a repossession showing up on your credit report.
Reason #5: Avoid Judgments, Garnishments, and Judgment Liens
You should consider filing bankruptcy if you have been sued or are in danger of being sued. A civil judgment becomes a part of your credit record that is not erased by bankruptcy. With a judgment the creditor may garnish your wages or place a lien on your property, which will only make the debt harder to discharge.
If you are struggling financially, discuss your situation with an experienced bankruptcy attorney. Your attorney can help you weigh the pros and cons of bankruptcy filing so you can avoid making matters worse.