The road to bankruptcy is a difficult one for most individuals. Finally coming to the realization can seem like a personal failure, due to the false stigma surrounding bankruptcy. This is oftentimes what keeps people from filing for bankruptcy. In a recent blog, I shared my own personal bankruptcy story, and the day I became true with myself about my debt and a reflection of where I am today- ten years later.
Oftentimes waiting to file bankruptcy can prolong financial and emotional problems. According to a 2018 law review study published by the Notre Dame Law Review, titled “Life in the Sweatbox,” the longer people waited to file for bankruptcy, the longer they struggled- not only financially, but personally.
I know it did for me. I was getting debt collector calls. I was feeling stress and my grades suffered as a result. I knew what I needed to do but I was scared to do it. Not until my brother filed bankruptcy and showed me nothing bad happened to him, did I summon the courage to seek out a bankruptcy attorney. I glad I did.
The law review piece studied the period of time before the individual files for bankruptcy, nicknamed the financial “sweatbox.” The “sweatbox” period varies for people. It can last anywhere from a few months to years. During this “sweatbox” period, individuals are not only facing debt collection proceedings but also a depletion of their assets. They are struggling significantly to make ends meet and afford even the most basic of living expenses.
The law review article took data from the Consumer Bankruptcy Project, which is an academic research project that studied individuals who filed for bankruptcy, reviewing the reasons why they chose to file and the subsequent consequences of filing. The data review information from 3,200 bankruptcy cases filed between the years 2013 and 2016. Out of this data, the law review article reviewed 910 of the 3,200 filers from the CBP survey.
More than 66 percent of those surveyed were considered “long strugglers,” meaning they had been living in the financial “sweatbox” for two or more years. Approximately one-third of the individuals surveyed ended up waiting for over five years to file for bankruptcy. Taking these figures and comparing them to CBP data from 2007, the number of bankruptcy filers who waited for five or more years doubled during this period of time.
Many factors weigh into debtors remaining in the so called, financial ‘sweatbox,’ but the consequences were often the same.
- Individuals who fell into the “long struggler” category had half of the average assets as compared to other debtors who chose to file within two or more years for bankruptcy;
- The median debt-to-income ratio for those filers who chose to wait for five or more years was approximately 40 percent higher than other bankruptcy filers;
- Of the individuals in this “long struggler” category, approximately 50 percent of them were facing debt collection lawsuits. It was estimated that 35 percent of the other debtors were facing similar lawsuits, meaning the longer someone waited to file for bankruptcy, the more likely he or she would be facing at least one collection lawsuit.
Some important questions to ask yourself before you consider filing bankruptcy, include:
- What is your debt-to-income ratio? If your debts make up more than 40 percent of your income, this can be a good indication that the debts are in fact too much to pay off.
- Are you borrowing to pay off other debts? Another red flag occurs when a debtor is paying off existing debt with new debt. This idea can seem like a good one in passing, but oftentimes, all it does is delay the inevitable or dig the person in a deeper financial hole.
- Can these debts be liquidated in bankruptcy? If the debtor is drowning in unsecured consumer debt, including medical bills, personal loans and/or credit card debt, bankruptcy can help that person.
- Are you unable to afford basic living expenses? Many individuals who were surveyed as living too long in the “sweatbox” were said to have been going without medical care or other necessities for too long.
If an individual finds himself or herself answering “yes” to most of the questions listed above, we advise sitting down with an experienced Orlando bankruptcy attorney – particularly if you are facing wage garnishment or have a debt collection lawsuit pending.