When Should You Consider Filing for Bankruptcy?

This is a common question that I am asked, sometimes by potential clients, but more often by friends and family of individuals who are in financial trouble, but don’t know at what point it is appropriate to make the recommendation to meet with a bankruptcy attorney.  As most bankruptcy attorneys offer free consultations, with no obligation to retain, there is no financial obstacle to seeking bankruptcy advice.  You should consider some of the following as warning signs of impending financial distress, which may suggest a meeting with a bankruptcy attorney.  I have classified the warning signs into three categories:  mild, moderate and urgent.  If you recognize several of the mild and moderate warning signs, or just one of the urgent warning signs, then it would be a wise idea to meet with a bankruptcy attorney to consider your options.


  • Using credit cards for “survival debt”, such as groceries, gas or prescriptions.
  • Carrying over balances on credit cards to the following month, if you have traditionally paid them off each month.
  • Obtaining credit card cash advances to pay utilities or secured debt.
  • Frequently utilizing overdraft protection on checking accounts.
  • Considering a consolidation loan to pay off credit card debt.
  • Resuming the use of credit cards after they have been paid off in a loan consolidation.
  • Running a month behind on the payment of secured debts, such as house payments and car payments.
  • Paying a portion of monthly utility bills, rather than the full amount.
  • Borrowing against your 401(k) or retirement plan.
  • Changing your income tax withholdings to allow for more monthly disposable income to satisfy creditors.
  • Gradually depleting your savings to meet monthly obligations.


  • Experiencing stress, sleeplessness or other medical problems because of financial concerns.
  • Arguing with your spouse or partner over finances.
  • Hiding or failing to disclose negative financial information to your spouse or partner.
  • Receiving collection letters and phone calls.
  • Being more than 2 months behind on an automobile payment.
  • Being more than 2 months behind on a mortgage payment.
  • Obtaining “payday” or other short-term , high-interest loans.
  • Pawning your car title.
  • Not filing income tax returns because of the inability to pay the taxes that are due.
  • Using loan proceeds for other than their intended purposes, i.e. using student loans to pay car payments, house payments, and other bills.
  • Divorce or separation.


  • Receipt of a lawsuit or wage garnishment.
  • Notice of a potential or pending foreclosure.
  • Being more than 3 months behind on an automobile payment.
  • Notice of a tax levy.
  • Seizure of your bank or credit union account.
  • Termination from your employment.
  • Any long-term or permanent reduction in income.
  • Having utilities cut off due to non-payment.

While this list is not exclusive, it is safe to say that at least one – if not many more – of these warning signs are evident leading up to any bankruptcy filing.  If you recognize some of the mild warning signs, then there is time to sit down, draft a budget, and see what steps can be taken to prevent the mild warning signs from progressing to the moderate stage.  If you recognize any of the moderate warning signs, then you would be well-advised to consult a bankruptcy attorney.  More often than not, consumers who have more than one of the moderate warning signs are more likely to advance to the urgent stage, absent bankruptcy intervention.  While a bankruptcy can often alleviate the problems outlined as “urgent”, failure to take quick action could result in the temporary or permanent loss of income, wages or property.