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Waiting to file bankruptcy can be costly

Virginia residents who are struggling to pay down debts and putting off filing for bankruptcy might be interested in the results of a report published in the Notre Dame Law Review. The report focuses on the pre-bankruptcy period, sometimes called the sweatbox. Researchers made use of data provided by the Consumer Bankruptcy Project, which gathered information from 3,200 bankruptcies filed between 2013 and 2016. The report takes information from 910 of the 3,200 bankruptcies and comes to some interesting findings.

Among those people included in the report, 66 percent were classified as long strugglers who faced debt collections or had to forego basic necessities to avoid bankruptcy for two years or more. Almost one-third of those involved in the survey waited for five years or more. Generally speaking, the longer people remain in the sweatbox and delay a bankruptcy filing, the worse their financial situations will be. For example, long strugglers have only half the median assets of other debtors, and their median debt-to-income ratio is more than 40 percent higher than other debtors.

Approximately half of long strugglers had debt collection lawsuits filed against them, which was true of only 35 percent of other debtors. People whose debts account for more than 40 percent of their income or are using new debt to pay off old debt should consider bankruptcy. The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13.

Individuals who have questions about how bankruptcy could impact their financial situations might want to speak with an attorney. An attorney with experience in bankruptcy law might be able to help by examining the client's situation and providing advice regarding whether Chapter 13 or Chapter 7 bankruptcy may help. Legal counsel could draft and file a petition to initiate the bankruptcy process or suggest other options to reduce or eliminate debts.

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