We meet with a lot of people who think bankruptcy is their best option and rightfully so, but bankruptcy is not for all debtors in all situations. Truthfully, with the majority of people we meet, bankruptcy is not only their best option, but it’s something they should have done much sooner. In many cases, they could have saved a lot of money if they filed earlier.
When we meet with individuals and couples, occasionally we’ll run into someone who should not file for bankruptcy for one or more reasons. In light of that, we compiled a list of four reasons why a debtor should not file for bankruptcy.
1. You have the means to pay your debts.
While most debtors who want bankruptcy relief truly need it, there is a percentage of people who feel overwhelmed and simply want to walk away from it all. If a debtor has more than enough income to pay off their debts, bankruptcy may not be practical.
The best way to determine if you would qualify for bankruptcy is to take your monthly income and deduct all of your monthly expenses. If you still have a significant amount of money left over afterward, you’re probably better off paying your debts.
On the other hand, you could have very little debt; for example, you could be in debt $10,000 or $15,000, but if you have little to no income coming in, that might as well be $10 or $15 million. Even if your debt load is relatively small, bankruptcy still may be your best option if a repayment plan is out of sight.
2. Your debt is non-dischargeable.
Certain types of debts cannot be discharged in bankruptcy. These include recent taxes, most student loan debt, court-ordered fines, victim restitution, child support, and alimony-spousal support. If most, if not all of your debt fits into any of the above categories, bankruptcy may not be within reach.
3. You mostly have student loan debt.
Most student loan debt is non-dischargeable. However, in some cases, debtors can discharge a portion or all of their student loan debt if they can show the court that repaying the debt would cause undue hardship on the debtor and their dependents, but the bar is set extremely high.
If your main debt is made up of student loans, we would suggest talking to a bankruptcy attorney from our firm to discuss the probability of that debt being discharged in bankruptcy.
4. You could lose some of your assets.
Chapter 7, in particular, is known as the “liquidation bankruptcy” because certain non-exempt assets are not protected in bankruptcy and are therefore subject to liquidation. If you have assets, such as boats, extra automobiles, or a vacation home that would be sold to repay your creditors, this could be a big reason not to file.
The vast majority of Chapter 7 bankruptcies are, however, no-asset bankruptcies, meaning the debtors do not have any assets not protected by the Bankruptcy Exemptions. So, even if you have some assets, such as valuable wedding rings, automobiles, and a home, they may not be subject to liquidation. Our advice is to check with a bankruptcy lawyer from our firm to see if your assets would be at risk in Chapter 7.