Pamela Foohey, a professor in the School of Law, spoke with CBS News about the best time to file for personal bankruptcy.
The stigma and shame that many Americans attach to bankruptcy causes people to turn to it as a last resort. Many people will file for bankruptcy only after they have plowed through retirement funds and other assets that would have been shielded from creditors by filing for debt relief. According to experts, dipping into pensions or borrowing money to cover expenses is considered a red flag.
“It makes sense to file if a creditor is going to be able to take away something you need,” said Foohey. “If a person is dealing with a wage garnishment that is harming their lives, or if a lender is threatening to repossess your car. If there’s no other way to get a car that will fit your budget, filing could be a way to keep your car, or keep your house.”
People should take into account their job situation and any health crises when planning to file for bankruptcy.
“If you lost your job, file after you found a new job; if you have a health crisis, you file after you’ve gotten better to discharge all of the medical debt that you’ve racked up,” said Foohey.
If someone’s family situation undergoes a change, such as a divorce or the birth of twins, she recommends that they first figure out how they’re going to manage going forward on a budget after the debt is discharged.
Personal bankruptcy filings averages about 750,000 a year before the COVID-19 pandemic but dropped drastically during the pandemic due to government aid. Now, experts expect a return to pre-COVID levels of filings.
“We’re still pretty far away from the filing numbers of 2019,” Foohey said. “There was a drastic drop at the time of the pandemic that continued for several years, which is now returning to pre-pandemic levels.”
