If you were like many Americans struggling to make their monthly payments and you are concerned about your debt, you may have thought about filing for bankruptcy. Bankruptcy may seem overwhelming because it often has a negative stigma. You may be concerned that you will never be able to purchase a home or vehicle because your credit score will drop too low after filing for bankruptcy. 

On the other hand, you may feel like you are at your wit’s end and you are out of options, leading you to consider filing for bankruptcy seriously. Bankruptcy will give you a fresh start, and in many cases, it is the best option. However, you should consider many different factors before you file for bankruptcy. We will discuss some of the questions you should ask yourself when deciding whether to file for bankruptcy.

Have You Exhausted Your Other Options?

Many people view bankruptcy as a last resort. In some cases, bankruptcy is a last resort. In other cases, filing for bankruptcy sooner rather than later is the best strategy. You may have other options that would be better than filing for bankruptcy. Consider whether you have done all of the following things before you decide to file for bankruptcy:

  • Sell some of your assets: It may be possible for you to sell some of your assets to raise enough cash to pay off your debt.
  • Contact your creditors: You may be able to negotiate a payment plan with your creditors. Sometimes lenders are willing to work out a payment plan rather than completely forgive your debt when filing for bankruptcy. One of the attorneys at Bankruptcy Law Center can help you negotiate with your creditors effectively and efficiently.
  • Sign up for credit counseling: Bankruptcy courts require you to undergo credit counseling before you can file for bankruptcy. You will need to pay for the counseling yourself, and it must be a government-approved agency. The counseling is a two hour financial management course. You’ll need to complete the counseling within 180 days before your bankruptcy discharge.
  • Eliminate unnecessary expenses: Are you spending money on something you do not need, like eating out regularly or a large cable TV package? You may be able to drastically cut down your expenses by using a budget, helping you avoid bankruptcy. Even if you still file for bankruptcy, getting on a budget can help you during the bankruptcy process.

Do I Have a Significant Enough Amount of Debt to Justify Bankruptcy?

Bankruptcy can help you achieve a fresh start, but the consequences of filing for bankruptcy will last for years. You do not have to have a minimum amount of debt to file for bankruptcy. For example, the amount of debt that justifies bankruptcy for one person might be a manageable amount of debt for another person. 

Certain types of bankruptcy require you to pass a means test showing that your debt is high enough compared to your income level. If you are unsure whether you qualify for bankruptcy, we recommend scheduling a free consultation with the Bankruptcy Law Center. We can help you understand whether you are eligible for Chapter 7 bankruptcy.

Will Bankruptcy Eliminate My Debts?

Sometimes people believe a misconception that bankruptcy will wipe out all of their debts entirely. This is not the case. Some types of debt cannot be eliminated. Examples of these include:

  • Student loans: Student loans can saddle a graduate with an enormous amount of debt. Whether the loans are from private lenders or federal government loans, you will not be able to have your student debt wiped out by filing for bankruptcy. There are a few narrow exceptions to this general rule. For example, if you can prove that your student loans cause you undue hardship, the court may eliminate your student loan debt at the end of the bankruptcy process.
  • Secured debt: Secured debt such as a mortgage or car loan will not be eliminated after filing for bankruptcy. Depending on the type of bankruptcy you have chosen to file and the terms of your mortgage agreement, your lungs may be exempt from bankruptcy.
  • Child support and alimony/spousal support: These types of payments and any other legal obligations you have because of a divorce or civil family law case will not be discharged in bankruptcy.
  • Property liens, including a lien on your home mortgage, will not be eliminated in a bankruptcy

Do I Need Creditors to Stop Harassing Me?

Being constantly hounded by bill collectors and creditors can take a toll on a person physically and mentally. If you are being called, messaged, or even have collectors coming by your house,  filing for bankruptcy could help you put a stop to all of the harassment. When you file for chapter 7 or 13 bankruptcy, your creditors are legally required to stop contacting you. They cannot harass you, and if they continue doing so, you have the right to pursue a claim against them. Reducing harassing creditors does a lot to reduce your stress while you figure out how to move forward with your finances through the bankruptcy process.

Do I Make Too Much Money to File for Bankruptcy?

When filing for bankruptcy, your income does play a factor. For example, if you would like to file for a Chapter 7 bankruptcy, you will need to show that your monthly income is less than California’s median income. This process is often referred to as passing the means test. However, even if your income level is more than the meeting income, you may still be eligible for a Chapter 13 bankruptcy. 

Many people are surprised to learn that they passed the means test once they factored in all their expenses. Determining whether you qualify for the means test can be complicated. Instead of trying to figure out whether you passed the means test on your own, we recommend discussing your case with an experienced bankruptcy attorney.