The Cost of Waiting to File Chapter 13 Bankruptcy

The Cost of Waiting to File Chapter 13 Bankruptcy "Due to the unappealing nature of bankruptcy, many individuals who are aware of their impending bankruptcy procrastinate and delay submitting for years. Typically, a person seeks out a bankruptcy attorney due to an event that generates a sense of urgency and compels them to file for bankruptcy. This event could be notification of a foreclosure sale, vehicle repossession, or service of a lawsuit. Regardless of the reason, the majority of people don't file for bankruptcy until they feel pressured by their creditors to do so, and this delay can cost them tens of thousands of dollars and cause them undue stress.Procrastination can be very costly for those who are in debt. This is particularly true for those with a high income who file for bankruptcy. For filers with significant incomes, Chapter 7 bankruptcy is typically not a viable option. The Bankruptcy Code restricts Chapter 7 relief to households with incomes below the median. Generally, filers with a high income must file for Chapter 13 bankruptcy and make payments to a trustee for five years. The Trustee distributes the funds paid to her to the creditors.Debtors are only required to pay their unsecured creditors in Chapter 13 bankruptcy if they have disposable income. Calculating disposable income involves filling out a form very similar to that which you would use to file a tax return. This form takes your average income over the past six months, excluding Social Security Act payments, and diminishes it using IRS deductions such as taxes, insurance, vehicle operating expenses, and many other deductions. Many Chapter 13 debtors make no payments to their unsecured creditors, but high-income debtors frequently repay the full amount owed.If you belong to the category of debtors who must repay all of their unsecured creditors, procrastination can be extremely costly. As anyone with a credit card can attest, debts accrue interest, and the longer they go untreated, the greater the balance becomes. For instance, a credit card balance accruing 30% annual interest doubles every two and a half years. At that rate, a $10,000 credit card balance can grow to $40,000 in five years, and that does not include late fees and attorney's fees if you are sued. Because you owe less at the time of filing, you will repay less in your bankruptcy case if you declare bankruptcy earlier.
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