How Much Debt Should I Have Before Filing for Bankruptcy?
If you’re struggling to keep up with your debt payments, you might wonder if bankruptcy is the right option for the amount of debt you have. While your concern is valid, the fact is that no fixed amount of debt qualifies someone for bankruptcy. What matters is whether the debt has become unmanageable. If you cannot afford to pay your debt obligations and it’s affecting your quality of life, it may be time to consider bankruptcy for a fresh start. Below are key questions to ask yourself before deciding to file for bankruptcy.
- Will You Be Earning More Soon?
If you expect to earn more in the near future, you might consider holding off bankruptcy for now. An increase in income may allow you to pay your debts without the long-term impact of bankruptcy on your credit. However, if you don’t anticipate substantial financial improvement soon, bankruptcy could provide the relief you need.
Conversely, the Means Test provides a six month look back of your past income in order to determine if you are eligible for a Chapter 7 case. It may alternatively be in your best interest to use your past 6 months of income to file bankruptcy before your wages increase.
- Have You Tried Debt Relief Programs?
Debt relief options can help make repayments more manageable. For instance, debt consolidation can enable you to combine multiple high-interest debts into a single loan with a lower interest rate. This can reduce your monthly payments as you’ll have only one debt to keep up with. If you qualify, debt consolidation may be a better alternative to bankruptcy. Another option is debt settlement, where you negotiate with creditors to reduce the total amount you owe. If these options don’t provide the relief you need, bankruptcy may be worth considering.
Debt Consolidation or Debt Negotiation agencies do not prevent creditors or debt collectors from filing a civil complaint against you to collect on debts, or prohibit interest and late fees from accumulating against your account while you negotiate a debt resolution.
- Have You Exhausted All Options?
Before filing for bankruptcy, it’s essential to explore all possible alternatives. If you’ve tried repayment plans, debt consolidation, and negotiations with creditors but still see no way out, bankruptcy might be the best path forward. It may also be in your best interest to defend against any debt collection action commenced against you.
Your Income Matters More Than the Size of Your Debt
When considering bankruptcy, your income plays a significant role, as it determines the type of bankruptcy you file. Most individuals either qualify for Chapter 7 or Chapter 13 bankruptcy depending on their household income and expenses.
Chapter 7 Bankruptcy
Chapter 7 is best if your income is low and you are completely unable to repay your debts. Here, you may be able to eliminate most unsecured debts, such as credit cards and medical bills, but you may have to liquidate some assets.
To qualify for Chapter 7 as a consumer debtor, you must meet the following criteria:
- File as an individual or married couple.
- Not have had debts discharged through bankruptcy in the past 6 to 8 years
- Complete court-approved counseling
- Pass the means test, which evaluates your income and expenses to determine eligibility.
Chapter 13 Bankruptcy
If you don’t qualify for Chapter 7, you may consider Chapter 13. A Chapter 13 bankruptcy entails reorganizing your debts into a structured repayment plan that is approved by the Bankruptcy Court. Your confirmed bankruptcy plan acts as your new court approved contract with you pre-petition creditors. This allows you to pay off your debts over 3 to 5 years. This may be a better option if you have a stable income and need time to catch up on debt payments.
Bankruptcy is a significant financial step with lasting effects. Ensure you consult a bankruptcy attorney to explore your options, and if filing is necessary, get expert guidance to navigate the process smoothly and protect your future.
Contact a Lehighton & Carbon County Bankruptcy Attorney
If you’re drowning in debt, you don’t have to go through this alone. Contact our Lehighton & Carbon County bankruptcy attorney at The Law Office of Adam R. Weaver. Esq., today to discuss your case.
Source:
cnbc.com/select/how-long-do-bankruptcies-stay-on-credit-report/
