In the area of bankruptcy law there is no “one size fits all.” Some people will have a far greater tolerance in handling financial stress than others. I have filed bankruptcy for people who owed as little as a few thousand dollars and for some people who have had hundreds of thousands of dollars worth of debt. Some people arrive in my office without having ever been late with a payment while with other clients I learn they haven’t made a payment to a creditor in several months or even years.
While there is no single reason why someone must file bankruptcy, there are some warning signs which might form a basis for you to sit down with an attorney and discuss the possible filing of a bankruptcy petition as a solution to some or most of your financial problems. Below, I will touch upon many of the tell-tale signs that someone should consider a bankruptcy filing.
- Cash Advances – While taking out a cash advance doesn’t mean on its face that you should file bankruptcy, a thought must be given why such an “advance” was needed in the first place. How much money was taken? How often have you taken cash advances in the past year? Since you begin paying interest on the cash advances the moment the money hits your hand and at a higher interest rate than a normal credit card purchase, there needs to be an immediate and vital reason to do so. If the cash advance is being used to pay for groceries or even utilities, there is likely a cash flow problem and you need to sit down with an attorney to discuss your options. The amount one is taking and the frequency of the cash advances also go a long way in determining the problems a household is facing with paying their monthly bills.
- Automobile/ Mortgage Arrearages– If you are consistently falling behind or paying late on either your automobile and/or mortgage payment it is usually a sign of financial problems. With regards to a mortgage payment, its due date is the 1st of the month. Any payment received after the 15th of a given month is considered late. Too many people come to me and feel as though their mortgage payment is due by the 15th. Your payment should be in possession of the lender on or before the 1st of the month. While paying an automobile loan or mortgage payment late is a small sign of a problem, being one or more months behind with such an important payment is a sign of a larger problem. Don’t be afraid to talk with a professional such as a well-seasoned bankruptcy attorney to see what can be done to reverse this trend.
- Max Limit Met on One or More Credit Cards– If you have “maxed out” (or about to) one or more lines of credit it is a sure sign that while things are not right, they are about to get worse. Generally, a creditor will extend a line of credit to you in an amount one should be able to manage based on their earnings and other monthly payment obligations. By either closely approaching or even exceeding the assigned credit limit, you have shown you do not have enough disposable income available to meet your financial obligations. If this is the case with more than one credit card or other line of credit, clearly something is wrong and a consultation should be sought.
- Types of Charges being made– Every household from time to time will encounter a particularly bad month or two. This is a normal and should be expected. This is where a credit card can help bridge the gap. If, however, you are consistently charging things such as groceries or utilities it is a sign there’s a financial problem in the household.
- Credit Card/ Other Unsecured Debt– While most of us carry credit card balances from month-to-month you need to monitor how much debt you are, in fact, carrying over each month. As most bills come in at different times over the course of a given month, many people don’t realize how much they owe in total to all of their creditors. Many are surprised to learn exactly how much they owe when I review their debt total and discuss it with them. How much do you owe versus your yearly household income? Your yearly household income should be far greater than your credit card and other unsecured debt amount total (IE: credit cards, medical/dental bills, personally loans, etc.). Scraping by each month only to make the minimum monthly payment amount is not a good thing. Assuming one continues down this path and never used the line of credit again, it would take well over a decade to completely pay off the entire balance amount. Just because you have “never been late” on a payment does not mean you are doing well.
- Bouncing of Checks– At some point in everyone’s life they have likely bounced a check. The problem is that in many jurisdictions a bounced check can lead to a hefty fine and even a Disorderly Persons offense on your record. How often have you bounced a check? What were the amounts of the bounced checks? Obviously, the more frequently this happens the more likely one is struggling financially. Additionally, if you are bouncing checks made out for nominal amounts, it is likely a very bad sign.
- Wage Garnishment/ Bank Levies/ Civil Judgments– If any of these things are happening or have happened to you it should be taken as a clear sign that things are not going well and help should be sought. This downward spiral will begin with a lawsuit being filed against you. An answer to the complaint must be filed within thirty-five (35) days of being served with the complaint. If you answer the complaint and lose the case, the court will enter a judgment against you. If you ignore the complaint, the court will enter a default judgment against you. Once default has been entered against you, the attorney for the party suing you can and will apply to the court for a final judgment. Once entered, a civil judgment is obtained and the party will begin trying to collect on their judgment. The most popular ways to collect on a judgment is by freezing bank accounts and garnishing wages. Sometimes this happens very quickly while other times it may come many months or even years following the judgment being entered. No news is not good news in the world of judgments. After twenty (20) years, a creditor may choose to renew the judgment for another twenty (20) years. Thus, a judgment can literally follow you to the grave.
This list is not meant to be exhaustive. Rather, it is but a few of the many warning signs that it might be time to speak with an attorney about bankruptcy. Putting your head in the sand will not make the bad things go away. You owe it to yourself and your family to take back control of your life and your finances. At Reinheimer & Reinheimer all of our bankruptcy consultations are absolutely free. Most consultations will take between sixty (60) to ninety (90) minutes to complete. Learn your right and responsibilities. Give us a call and learn about what we can do for you.