Enough Debt to File Bankruptcy?

The end of Summer brings the Fall season - which to many means football and barbeque. This was most true for me when I lived in Oklahoma. Most of my neighbors were extremely emotional about their football and their barbeque. I wasn’t surprised with the love of football.But I was extremely surprised at how many opinions there were about barbeque! I can’t even count the number of lessons I was given by grill or pit masters (by the way everyone down there considers themselves a pit master) on how to properly grill.

When to marinate, when to warm the grill, when to turn down the heat, why I should use charcoal, why Kansas and Texas grilled imperfectly etc. etc. I swear - every family had their own steps on how to work their grill properly.

I would always ask each pit master “when do I know when the meat is done cooking?” and never received an quick and easy answer. I was hoping there was some easy to remember time calculator. Something like, “if you have 8 ounces of steak cook the meat at 500 degrees 8 minutes each side” or something like that. Determining when the meat was properly cooked and ready for consumption depended on the circumstances of the particular barbeque. What meat was cooking? Who was going to eat it? What heat source was I using? Etc. Etc. No barbeque pit master could tell me “when enough was enough” without asking a number of questions to find out my circumstances.

Just as with the pit master, when I am asked “do I have enough debt to file bankruptcy?” I respond that it is a tough question. There actually isn’t a minimum amount of debt the bankruptcy Court requires that you have in order to file a petition for bankruptcy. The Court realizes that each situation is different. I can tell you that I’ve helped individuals file for bankruptcy that have $3,000 in debt and some who have over $1,000,000 in debt. Each situation is different.

Now, if you’ve asked yourself - “do I have enough debt to file bankruptcy?” what you might be asking is how do I know if my debt qualifies me to file bankruptcy. You likely have gone through some tough situation where you are at least gathering options. Well, here are some items to consider if you are thinking about bankruptcy. While this list isn’t a quick and simple answer to your question, I do hope that it helps you in determining what you can do to regain control of your financial life.

Your non-bankruptcy options

I always tell people that they should avoid bankruptcy if there is a better option. A better option would be one that provides better immediate and long term returns than bankruptcy. As an example, take the purchase of a home. Bankruptcy can generally help your credit score improve naturally so that within 2 years (as long as the income is there) you could finance the purchase of a home. Now compare that to debt management or some sort of paying your debts back. If you can pay back your debts in a time frame quicker than 2 years - say in 18 months - then maybe bankruptcy is not the best option. If you cannot pay your debts now, let alone monthly for 18 months, then that may be a good indicator that bankruptcy is a good option for you. There are a number of bankruptcy alternatives that a bankruptcy attorney can walk you through to help you determine that bankruptcy is indeed your best option.

Are your creditors working with you?

If your creditors are willing to work within a payment schedule that allows you to be debt free relatively quickly, then things are great! However, it tends to be one or two creditors that cause all the problems. If you have a creditor that is unwilling to work with you (which in turns causes risk of wage garnishment, property loss, and sleepless nights), bankruptcy may be a good option. Bankruptcy forces all creditors to obey the Court’s rules when it comes to collection activity. Creditors will be forced to play by your rules and receive payment, if warranted, by the terms you set. The Court even has power to cap certain interest rates under a Chapter 13 filing. If you want to pay back your debts but are unable because of just a few of your creditors, contact an experienced bankruptcy attorney and find out what payment options you have that help you control payment on the debts.

Types of debt you have; can I get rid of my debts in bankruptcy?

Bankruptcy would not be a good option if the type of debt you have cannot be taken care of in bankruptcy. In general, student loans, tax debt and domestic support obligations will not be wiped out in a bankruptcy (there are exceptions to the rule and a consult with an experienced bankruptcy attorney can quickly determine if your situation fits an exception). All other types of debts will generally be wiped out.

Your employment and income situation

Obviously your options open up if you have the income to pay back your debts. However, life sometimes has a way of making things difficult. Ever heard of that phrase, “when it rains it pours”? Well, you might just be a victim of poor timing. Maybe you’ve just gone through a divorce and lost one-half of your family income. Maybe you just got out of the hospital and didn’t have medical insurance. Or maybe a self-owned business failed because a turn in the market. None of these examples necessarily mean you are bad with money - it just means you don’t have the income to pay back your debts. Now that you are back on your feet, bankruptcy is an option that would allow you to save and put away for the future rather than use your hard earned money to rectify a past situation that was out of your control. Before you try to dig yourself out of a hole that may be impossible - consult with an experienced bankruptcy attorney to see what options you have.

Are you facing foreclosure or repossession?

If you are facing foreclosure or repossession and want to keep your home or car, you should consult with an experienced bankruptcy attorney right away. A timely filed bankruptcy case can help you catch up payments and avoid losing your home or car. Even if you have no other debts, filing a Chapter 13 bankruptcy case prior to a foreclosure will allow you to pay back all the mortgage arrears. Outside of bankruptcy your only option would be to catch up payments prior to a sale date and sometimes this is just impossible.

Do you own “non-exempt” property?

The bankruptcy Court will remove your liability to pay your debts. The price for doing so is to turn over (or pay) to the Court the value of items that are deemed non-essentials by your State’s exemption statute (or federal exemption statute if you State allows it). The exemption statute basically states that there are some types of property that are considered the bare necessities any individual should be allowed to have - and no creditor has the right to take that type of property away. You file bankruptcy when you need protection - protection for yourself and for your property. Well, if you have a lot of non-exempt (said another way - none protectable assets) maybe bankruptcy is not the best option for you. It wouldn't make sense to file bankruptcy with the intent of protecting yourself if by so doing you lose the very asset you are trying to protect. Consulting with an experienced bankruptcy attorney will help you know whether your assets are protected or not. Before you liquidate and sell of property - be sure to consult with a bankruptcy attorney.

Conclusion

I’m no pit master but I have practiced bankruptcy law for a long time. If you have asked yourself “do I have enough debt to file bankruptcy?” you likely are in a tough situation and need to discuss your options. Do yourself a favor and schedule a consultation with a bankruptcy attorney. Most consults are free and have no obligation. If nothing else you will learn why bankruptcy is or is not a good option for you and what factors you should think about before taking any action.