Do I Have To Have Bad Credit To File Bankruptcy?

Typically, bankruptcy filers fall in two categories: those with bad credit and those who will have bad credit. Obviously, many bankruptcy filers have multiple past-due accounts, repossessions and foreclosures which result in dismally low credit scores. These people have tried to hold off on filing bankruptcy until it becomes absolutely necessary to stop a foreclosure, wage garnishment, repossession, and/or relentless collection activity.

Often, these “last-minute” bankruptcy filers, who have endured many sleepless nights and arguments with their spouses about debt, tell me, “I should have filed years ago!” However, there is a smaller group of people that have good, great or even “perfect” credit at the time of filing bankruptcy. These people “see the writing on the wall,” and they want to avoid the inevitable journey into lawsuits, collection calls and depression over personal finances.

Should someone file bankruptcy the moment things go wrong? Well, usually not, but every case is different. For instance, someone who loses a job shouldn’t instantly consider bankruptcy, but a personal guarantor of large business loans in default might immediately recognize the impossibility of repayment, even though he may have never missed a payment on his personal debt. That person might benefit from a bankruptcy right away.

The real danger in waiting until the last moment to file a bankruptcy is that people often make poor financial decisions, like raiding home equity or retirement accounts, before consulting a bankruptcy lawyer. Home equity and retirement accounts are usually protected from creditors in a bankruptcy case and are key to rebuilding a life after bankruptcy.

So, considering that bankruptcy lawyers charge little to nothing for a consultation, it never hurts to talk to a qualified attorney while your credit is still good. Your attorney can advise you how to protect your assets and reorganize your finances in the event bankruptcy becomes inevitable months or even years later.

Read this BLN article on how to rebuild credit after bankruptcy.