The answer for the right time to file bankruptcy is more often now, rather than later.

Usually the more common question is should I file bankruptcy with “only” $xx,xxx in credit card debt. That is almost impossible to answer. $5,000 in debt could be a drop in the bucket for some people, but a crushing amount for others.

The more important issue may be to time your bankruptcy properly.

I have clients who come in for a consultation, decide to think about it, and then I don’t see them again for well over a year. Something has forced them to come running back to get filed “right away”… The client is going to be garnished. The modification the mortgage lender promised was a lie.

Whatever the reason, the client would have saved a lot of trouble and stress if they had moved towards filing bankruptcy right away.

The main reason filing right away is usually a good idea is because of the nasty means test. The means test looks at your income over the last 6 months. If your household makes too much money, compared to an average family of your size, then you do not qualify for chapter 7.

I can give you countless examples of people who qualified for chapter 7 when they first came to see me, but now don’t qualify for chapter 7 anymore. Maybe they earn more money now. Maybe a large bonus. Maybe they got married and added income to the household.

Another problem is the wage garnishment. Someone is being sued on a credit card, but decides not to file bankruptcy right away. The credit card company gets a judgment and starts garnishing the person’s wages. Since they are being garnished, they don’t have enough money to get the attorney paid to file the bankruptcy. A vicious cycle indeed.

Trusting your mortgage company to come through with a permanent modification can be dangerous too. We have all heard countless stories of the mortgage company promising a modification while at the same time pushing the foreclosure through the court.

If people would take advantage of chapter 13, and all its benefits, they should be in a better position to keep their home. Instead of getting even further behind on the mortgage, get into chapter 13 sooner to correct mortgage arrears. Strip your second mortgage before the value of your home prevents you from using the tool.

Filing bankruptcy sooner, rather than later is generally the better option for most people. Only an attorney should counsel you on proper exemption planning.

A consultation with an attorney goes a long way to determine the best time to file your bankruptcy.