It might seem odd for a bankruptcy attorney to tell you not to file bankruptcy, but I do it quite often in my practice. Now don't me wrong, there are many situations when individuals facing large debts should absolutely consider filing bankruptcy. However, there are situations where it is not so clear. So, when should you NOT file bankruptcy?
The first situation is when your debt burden is manageable without bankruptcy. If your total debt can be handled outside of bankruptcy, you probably do not need to file. That amount will be different for every individual. For someone on a fixed budget (such as Social Security), a lawsuit judgement for even a few thousand dollars could necessitate a bankruptcy. Higher income individuals may be able to avoid bankruptcy even when they owe many times more. A good rule of thumb is to look at how much you are able to reduce your debt burden in a normal month. If you can put a healthy dent in your debt each month, you may not need to file. However, if you can only make minimum payments on your credit cards, or you can barely pay your utilities, you should strongly consider filing. I have found that people have a pretty good feel for when their debt is beyond their control, but it is often good to discuss it aloud with a professional.
A second situation where you may not need to file is when the bulk of your debts are not dischargeable. For instance, student loans are not normally discharged in Chapter 7 bankruptcy. If almost all of your debt is student loans, obviously bankruptcy will not be much help. Bankruptcy will not eliminate your debt. Taxes often raise the same issue. In rare cases, credit card debt is not dischargeable, even if only temporarily. I will be happy to discuss what types of debt are not dischargeable to see if filing is worthwhile.
Another situation where filing bankruptcy may not be in your interest is if you want to get a mortgage in the near future. Bankruptcy will not prevent you from getting a mortgage forever, but it will make the process more difficult to complete for at least a few years. I talk to people in this situation occasionally, and whether or not to file is determined by a few important factors. If your debts are large and your savings are low, getting a mortgage may be impossible anyways. If your debt is manageable, and especially if you expect an increase in income in the near future, putting off bankruptcy in order to get a mortgage may make sense.
Thoughtfully considering an individual debtor's circumstance is an important part of my job. Sometimes filing bankruptcy is inevitable. Sometimes it is avoidable. Contact us to set up a free consultation, and I will be happy to sit down and consider all of these factors with you.