Often when clients come in for a bankruptcy consultation they will tell me their situation and ask whether bankruptcy would be appropriate in their case.
The answer to this question varies from person to person. However, there are common factors among most of my bankruptcy cases that I believe can help give you some guidance as to whether you should make the plunge and file for bankruptcy. Here they are, in no particular order:
This is the crisis factor. If you are facing a wage garnishment or you are at risk of losing your home bankruptcy can stop the bleeding on this problem very quickly. In fact, we can file what is known as an emergency bankruptcy where we are only required to file some initial paperwork with the bankruptcy court and will be able to stop the garnishment or foreclosure sale.
If this is your situation, and you need it stopped…now. Then bankruptcy is a good option.
Similar to the garnishment or the foreclosure sale if you have recently been served with a collection law suit bankruptcy may be a good option. Here in Arizona you only have twenty (20) days to file a written response to the lawsuit or you risk a default judgment being entered against you.
By filing for bankruptcy you will stop the lawsuit dead in its tracks. In fact, if you file your bankruptcy before the twenty (20) days is up you won’t even need to spend the time and money responding to the lawsuit. It will simply stop because of your bankruptcy filing.
You Anticipate an Increase in Income
Back in 2005 they changed the bankruptcy code. Now, if you want to file chapter 7 bankruptcy you have to qualify for it. They base this upon the number of people living in your home and the income coming into your home. When we look at income, the court has me take an average of the last six (6) months.
If you have been unemployed (or under employed) over the last six months it will likely be very easy to qualify you for a chapter 7 bankruptcy. But what if you just got a job or a better paying job? How will that impact your qualifying? In the short term it won’t. However, if you need to file bankruptcy and wait, your higher income will have to be taken into account and could make it so that you no longer qualify for a chapter 7 bankruptcy.
Many bankruptcy cases are filed due to outrageous medical bills. It is important to understand that generally medical bills are eliminated in a chapter 7 bankruptcy. And if you recently have gone through a difficult medical issue and now owe way more than you could ever pay, bankruptcy may not be a bad option.
However, if you anticipate needing additional medical care you may want to hold off on the filing of your bankruptcy. Contrary to what many people believe, if you owe a doctor money, and then you file bankruptcy and don’t pay that doctor back, he/she doesn’t have to continue to see you as a patient.
This often comes up with my clients who have children with braces. If you want that orthodontist to take off the braces one day, you will likely have to pay him or come up with some sort of arrangement.
You Simply Can’t Pay What You Owe
A question I get often is whether a person has enough debt to file for bankruptcy. There really isn’t any magic number when it comes to the amount of debt you need to have to file a bankruptcy case. What it really comes down to is do you have enough income to pay off your unsecured (i.e., credit cards, medical bills, store cards, etc.) debts within the next five (5) years.
If you are only paying the minimums each month and have been doing that for years, you either need to increase your income so that you can increase your monthly payment, or you need to look into the possibility of bankruptcy.
If you continue down the path you are now in – without making any changes – then you really can’t expect any real improvement in your situation.
There are many other factors that go into making the decision to file for bankruptcy. Most bankruptcy lawyers in Arizona offer a free consultation so that you can go over the specifics of your situation and get a good idea of what the process is like.
In the end, it is up to you. But these factors may push you one way or the other.