Deciding to File Bankruptcy is a Very Personal Decision
I can’t tell you, nor should I presume to tell you, if filing for bankruptcy is the right decision for you. My clients come to me with concerns about whether Chapter 7 or Chapter 13 bankruptcy filing is ethical or moral; after all, we’re all raised to pay our debts, and feel a little awkward about getting protection from a court. However, under the following circumstances, a bankruptcy petition is virtually certain to be proper (this is not an analysis of your personal situation, but I’m speaking generally here – you and I will talk about your situation, and if a bankruptcy filing is not right for you, I will not hesitate to recommend against filing).
- You have a large number of dependents
- You are older in age – by the time you reach your late 50’s or 60’s, it will be much harder to pay your monthly bills and continue to reduce your debt
- You are younger, but have a very high amount of credit car debt
- You have a very high amount of dischargeable debt (credit cards, medical bills, etc)
- Your savings and other assets are negligible
If you are already receiving threats of garnishments or if your wages are being garnished; if your car is on the edge of being repossessed; if your mortgage lender is threatening, or has scheduled, a foreclosure; or if you are suffering from any other creditor harassment – any or all of these maylead you to the decision that bankruptcy is right for you.
If possible, it’s best to file for bankruptcy before these types of collection activity force you to rush into filing a bankruptcy. Even if you could eventually pay off all of your debt, you still may choose to file bankruptcy since you can use your future income to save for your long-term goals instead of paying off old debt. You may also file for bankruptcy to provide relief from emotional distress or depression that is commonly related to debt.
Bankruptcy’s Primary Purpose
Bankruptcy’s primary purpose is to protect you from your creditors and provide relief by giving you an opportunity to reorganize or eliminate your debts. The filing of bankruptcy generally results in the discharge (or release from obligation) of most of your debts, so that no further legal actions can ever be taken against you for those debts. In short, bankruptcy gives you an opportunity to receive a fresh-start, rebuild your credit, and improve your life.
Bankruptcy may help you in any of the following scenarios:
- You can’t pay your debts
- You’re receiving telephone calls from collectors demanding payment
- Your home is in foreclosure
- You’re in danger of losing your business
- You’re being sued by one of your creditors
The “Should I File For Bankruptcy?” Checklist
If one or more of the following applies to you, consider your bankruptcy options and consult with a bankruptcy attorney.
- A creditor garnishes your wages or freezes your bank account
- Your mortgage company files a foreclosure proceeding against you
- Your auto lender threatens to (or has already) repossess you car
- Your driver’s license is suspended because of an accident or parking tickets
- You have a large amount of unsecured debts (credit cards, medical bills, repossessions, broken leases, utility bills, etc.)
- You cannot afford to repay your all your consumer debt over the next 5 years
- Collection agencies and creditors call you at home or at work
- Your payments are more than 30 days behind on two or more bills
- Your creditors file collection lawsuits against you
- You can’t pay large medical bills not covered by your health insurance
- You owe income taxes, student loans or government fines that you are not going to be able to pay in one lump sum
- Your debt total remains the same even though you’re making payments
- You recently lost a source of income that you need, to repay your debts
- Because of divorce or separation, you can’t afford to repay your debts, because of the loss of a portion of the household income.
Who Benefits Most From Filing Bankruptcy
Bankruptcy offers the most benefits if your wages are garnished, your home is in foreclosure, your car is about to be repossessed, or your driver’s licenses is suspended due to an uninsured or underinsured accident. The filing of a bankruptcy can stop a court ordered garnishment, stop a foreclosure proceeding, save a car from repossession, recover a vehicle that was repossessed, and get your driver’s license reinstated.
Bankruptcy is Not Always Right for Everyone
Here are some examples in which bankruptcy may not be the best fit for you:
- You own assets and/or can repay your debt
If you own stocks, investments, a decent amount of equity in your home, or savings that you could use to repay your debts, or if your income is large enough that you could repay all your debts in the near future, you may not need to file for bankruptcy.
- You are “judgment proof.”
You might not have any wages or property that your creditors would be permitted to take from you. People who fit this description are often referred to as “judgment proof”. “Collection proof” is a more accurate description, because your creditors can still file a lawsuit and get a judgment against you; they just can’t enforce that judgment, nor can they collect any money. “Judgment proof” individuals are typically senior citizens on a fixed income who don’t own many assets or a home. Even if you are judgment proof, bankruptcy may be helpful to stop future lawsuits or creditor harassment. Also, sometimes, even judgment proof debtors simply want the relief from worry that comes from a bankruptcy filing.
- You defrauded your creditors
Bankruptcy law was created for honest people who need the help of the Bankruptcy Court to get a fresh start. If you have purposefully engaged in activities to either hide your assets or defraud your creditors, such as the recent transfer of assets to your family or friends to hide them from your creditors or lying on a credit application about your income, a bankruptcy may not be your best course of action.
- You recently incurred debts for luxury purchases
If all of your debts are a result of a recent luxury spending spree, filing for bankruptcy may not help your situation. Most luxury debts incurred just before filing bankruptcy are not dischargeable if the creditor objects. However, if these luxury debts are not recent or intentionally fraudulent, you may be able to eliminate them in a bankruptcy.
- You expect to incur more debts for future necessities
If you expect to incur more debts for necessities, such as upcoming medical costs for an illness or medical condition, consider delaying filing for bankruptcy until all your upcoming debts have been incurred. Debts incurred after filing for bankruptcy cannot be included in your bankruptcy.
- A friend or relative cosigned a loan for you
Anyone who cosigned a loan or otherwise took on a joint debt with you can be held completely responsible for the debt if you file for Chapter 7 bankruptcy. On the other hand, you may be able to protect your cosigner in a Chapter 13 bankruptcy.
- You previously received a bankruptcy discharge
You can’t file a Chapter 7 bankruptcy if you previously obtained a Chapter 7 discharge within the past eight years. In this situation, Chapter 13 bankruptcy may be available to you.
- Your previous bankruptcy case was dismissed
You may not be able to re-file a bankruptcy if your previous bankruptcy was dismissed within the past 180 days for violating a court order or you requested the dismissal of your bankruptcy after a creditor was granted relief from the automatic stay.