This is a difficult question. As you can imagine, I get asked this a lot. Usually “Should I File For Bankruptcy?” is asked as one of the first questions when a new prospective client calls or emails me. Most of the time, the question is too complicated for dealing with by email, so early on in the exchange of emails I am very likely to suggest that the person just call me on the phone.
I usually break the conversation down into two issues: First, can these people file for bankruptcy – are they eligible; and second, we answer the question “should I file for bankruptcy”.
For details of the technicalities of eligibility, you should look at my pages devoted specially to Chapter 13 and Chapter 7. Almost everyone qualifies for one or the other, although I do run into a few who don’t qualify for either.
Assuming that a person qualifies, the question of should I file for bankruptcy is probably harder to figure out. In my opinion nobody should file any kind of a bankruptcy if they have any other options available to them. How does one know if there are any other options? After all there are adds on the TV and the radio for debt management programs and debt consolidation programs.
In my opinion you are out of other choices if your dischargeable unsecured debt – the debt that usually can be gotten rid of in a bankruptcy – equals or exceeds one half of your annual gross income.
So first I will try to figure out how much your annual income is right now, and then I will want to start adding up the debts. When I add up the unsecured debt, I do not include the student loans, because they will still be there after the bankruptcy is finished. I also would not include child support arrearages and most taxes for the same reason. As a practical matter, however, lots of student loan debt or other nondischargeable debt may lower ratio of how much other debt as compared to annual gross income would justify filing in my opinion. The higher the student loan debt, the lower the dischargeable unsecured debt to income ratio I would want to see before taking the case.
What Does The Law Say about Filing for Bankruptcy?
The law doesn’t help answer the question of Should I File for Bankruptcy. It provides for no minimum amount of debt which is required to be there before one can file a bankruptcy.
Every case is different, and there has never been a foolproof mathematical formula that has seemed to work for me. But here’s what I am really trying to figure out: as a practical matter can these people live long enough and work hard enough to pay off this debt by some time within their reasonable life expectancy?
If the answer is no, then I recommend that either a Chapter 7 or Chapter 13 be filed. What I find is that most of the people who call me have passed the point of no return some time ago.
If you need to talk to a professional about whether or not you should file for bankruptcy, give me a call today at: 952-544-6356