Bankruptcy is a financial tool that can help people struggling with more debt than they have income to repay. Quite a few people don’t even think about bankruptcy until their financial circumstances become so dire that they have no other option.

If you have found yourself deciding which bills to pay or avoiding answering the phone because of creditor calls, bankruptcy may be something you’ve considered. How do you know when it is the right time to file for bankruptcy?

When you can’t cover your costs and see no changes on the immediate horizon

Most everyone experiences at least a few temporary downturns in their income throughout adulthood. Maybe you get laid off and have to go several months without a paycheck until you can get back to work. Perhaps you get hurt in a car crash or come down with a serious illness and have to take weeks or even months to recover.

In both of those scenarios, while the person struggling will have to make difficult financial decisions, things will eventually begin to improve. If you see no reason to think that your circumstances will change despite reaching a point where you can no longer pay all of your bills in full every month, it may be time to consider bankruptcy relief before things get too bad.

When creditors take drastic measures due to delays in payment

Bankruptcy can help you regain control over your financial circumstances, but waiting too long to file could diminish the benefits that you receive. For example, if you wait until after someone successfully sues you to secure a garnishment of your wages, the bankruptcy will only protect you from future collection activity and not necessarily the existing garnishment.

The same is true for attempts to repossess or foreclose on assets like your home or vehicle. Once a creditor takes possession of those assets, you likely can’t get them back and won’t be in a position to negotiate.

Filing bankruptcy before the courts rule in favor of your creditor and before they successfully repossess your vehicle or foreclose on your home can give you an opportunity to negotiate and protect you from imminent losses due to the automatic stay.

When you know that your budget just isn’t going to work anymore

Maybe you had to accept a pay cut or perhaps you have a new debt, like a medical bill, that requires a few extra hundred dollars every month. When it isn’t possible for you to balance your budget anymore, pursuing bankruptcy sooner rather than later can be a good decision.

If you think bankruptcy is the best solution to your current situation, discussing your idea with an attorney can help you make the best decisions for a more stable future.