Once you've determined that bankruptcy is the right option for you, you still need to decide when to file bankruptcy. In making this decision, here are some factors to consider.
File Before Creditors Sue You
Once you are sued, no matter the outcome, you will almost certainly spend money on your legal defense; you will also experience stress, have time taken away from family and work, and generally experience a host of unpleasant effects. If you believe that creditors are about to sue you, declare bankruptcy first; bankruptcy "stays," or delays, collections efforts, including lawsuits, so you can spare yourself the stress and cost of being sued.
File Before You Lose Your House or Your Car
Some debts, like car loans, mortgages, and home equity loans, are secured by property. The property is collateral; if the debt isn't paid, the lender can take the property. Secured debts still need to be paid after filing bankruptcy, but the bankruptcy process, by eliminating other debts and giving you an opportunity to catch up on missed back payments, can often make it possible to do so and keep the property. However, while bankruptcy will stay collections--including foreclosure or repossession--it does not reverse actions that were already taken. Therefore, if you want to keep your home or your car, file before the bank comes and takes it.
File Before You Default
Bankruptcy will negatively effect your credit for a decade. However, defaulting on a loan can effect your credit almost as badly, for almost as long. If you go into default first, then later file bankruptcy, you will extend the total time your credit is negatively impacted--it'll suffer for the 10 years of bankruptcy plus however long you were in default before filing. If you know you're going to default, file now, so you start the clock running earlier.
Consider the Timing of Any Credit Transactions
If you're about to do some major financial transaction, if possible, finalize it before filing--because if you declare bankruptcy in the middle of applying for a loan, the lender will feed your application directly into the shredder. Of course, if you file immediately after closing a deal or loan, the other party may accuse you of fraud, which means the timing is critical--ideally you want at least some time to pass after closing a significant transaction before filing bankruptcy.
How an Attorney Can Help
A lawyer can help you understand not just whether, but when, filing for bankruptcy is the right option for you--and the attorney can also help you deal with any objections or challenges from creditors.
