Bankruptcy is not something that people look forward to and because this is the case, many people know bankruptcy will procrastinate and delay filing for years. There is usually some event that creates an urgency to file and causes them to seek bankruptcy attorneys. This event can be in the form of a notification of the sale of the foreclosure, repossession of their car or being served with a lawsuit. Whatever the reason, most people don’t file for bankruptcy until they feel compelled by their creditors and this delay can cost them tens of thousands of dollars and a lot of unnecessary stress.
Procrastination can be very expensive for people who are in debt. This is especially true for high-income bankruptcy filers. For high-income whistleblowers, a quick and easy Chapter 7 bankruptcy case is usually not an option. The Bankruptcy Code limits relief under Chapter 7 bankruptcy to below-average income households. High-income whistleblowers are generally required to file a Chapter 13 bankruptcy case and make payments to the trustee over five years. The Trustee takes the money paid to him and pays it to the creditor.
In Chapter 13 bankruptcy, debtors are only required to pay their unsecured creditors if they have disposable income. One-time income is calculated using a form very similar to what you would expect to fill out if you were to file a tax return. This form takes your average income over the last six months, excluding payments under the Social Security Act, and then deducts this amount using IRS deductions such as taxes, insurance, expenses related to operating a vehicle and many other deductions. Many Chapter 13 debtors pay nothing to their unsecured creditors, but high-income debtors often pay 100% of the amount owed to these creditors.
If you fall into the category of debtors who have to pay back all of your unsecured creditors, then procrastination can be very detrimental. As anyone with a credit card can tell, debt builds up, and the longer it goes unpaid, the bigger the balance. For example, a credit card balance that bears 30% annual interest doubles every two and a half years. At that rate, a credit card with a balance of $10,000 can increase to $40,000 in five years and that doesn’t take into account late fees and attorneys’ fees if you are sued. Filing bankruptcy early means you pay less in your bankruptcy case because you don’t owe much at the time of filing.