The concept of bankruptcy has an undeserved association with bad things. While you're not usually talking with a bankruptcy attorney because everything in your financial life is going swimmingly, it's important to know the process is there to protect you. Still, you might wonder how awful your situation has to be for bankruptcy.
Qualification
Potential filers should set aside the negative associations. Bankruptcy isn't about the desperation of your situation. It's about whether you qualify to file.
Bear in mind, there are two types of bankruptcy. Consequently, each has its criteria for qualification.
The liquidation process under Chapter 7 has a fairly straightforward qualification process. If you make less than your state's median income, you'll likely qualify without proving more than what your income is. Folks who make more than the median income may submit to means testing. This means they have to show their debts are significant enough that they can't reasonably afford to pay it off with their income.
Your other option is restructuring your debts. Restructuring occurs under Chapter 13 for most people, although a few high-debt individuals may pursue Chapter 11. If you want to restructure your debts, you have to prove to the court you can pay the lower amount. Otherwise, the judge may reject the case. In that scenario, your remaining option would be to refile under Chapter 7.
Timing
The law prohibits constant bankruptcy declarations. For example, if you previously successfully filed a Chapter 7 case, you'll have to wait some time before filing again for Chapter 7 or Chapter 13. In some cases, the court may waive the period with the consent of your creditors. Going from Chapter 13 to another Chapter 13 petition also requires a waiting period.
Some types of bankruptcy require no waiting period. However, you must meet a certain debt threshold. For that reason, a bankruptcy lawyer will usually only recommend it to businesses.
Should You Wait?
Ultimately, this is your choice. However, a bankruptcy attorney will rarely tell a client who qualifies to hold off on seeking relief. If your financial circumstances are bad enough bankruptcy is on your radar, there's a good chance waiting months or years will only create more trouble.
The main reason for a delay is only to do so for a few weeks. A bankruptcy lawyer will want to get everything in order before you file. Once you initiate the process, the court will want all of your supporting paperwork like tax returns and pay stubs within a couple of weeks.
