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When is the right time to file Chapter 13 bankruptcy?

On Behalf of | Mar 4, 2022 | Bankruptcy

Chapter 13 bankruptcy is a powerful tool for those who earn a competitive wage or who have substantial personal property. Unlike Chapter 7 bankruptcy, which quickly leads to a discharge of someone’s debts, a Chapter 13 filing requires that someone complete a repayment plan that lasts for between three and five years before your discharge.

You can potentially file for bankruptcy at any point when your finances become unsustainable. Still, choosing the right moment to file can help you maximize the benefits that you receive. How do you know when it’s time to file for bankruptcy?

When a creditor wants to take you to court

Creditor lawsuits can lead to serious financial complications. It can be difficult to challenge an existing garnishment or have a lien on your personal property released once the courts have already sided with a creditor.

Although bankruptcy does give you options to end garnishments and challenge liens against your property, it can be a more powerful tool for preventing either of those situations from occurring in the first place. As soon as you get served with lawsuit paperwork, you can file for bankruptcy and potentially prevent any court hearings or a decision against you.

When you missed payments on a secured debt

For many people, Chapter 13 bankruptcy becomes necessary when they fall behind on their mortgage. However, car loans are another form of secured debt where the loss of collateral property can do real financial harm.

A mortgage lender will have to give you notice about foreclosure, but a lender who financed a vehicle purchase does not need to warn you about a repossession. If you have missed one or more payments, bankruptcy could prevent foreclosure or repossession. 

When you can no longer balance your budget

If you can’t at least pay the minimum amount due on your accounts while covering all of your cost of living expenses, it may be time to re-evaluate your budget. Chapter 13 filing not only temporarily stops collection activity but also gives you a chance to renegotiate your debts with creditors.

Choosing the right moment to file for Chapter 13 bankruptcy can help you take control of your finances again.