Is Bankruptcy a Good Option?

Every debtor has their own unique set of circumstances, which means that there is no one-size-fits-all solution for financial problems.  Many people are considering bankruptcy today, and for some, it is a way out of overwhelming debt and a chance to build a more responsible financial future.  For others, there may be other, better solutions.

 It is important for debtors to get up to date information about the requirements for filing bankruptcy, then carefully consider how that solution would work for them.  In addition, it can be essential to consult a bankruptcy attorney to help them make that decision, and if they choose bankruptcy, to help them file quickly and correctly.

Benefits of Bankruptcy

The two most important purposes of bankruptcy are:

To provide creditors with an appropriate share of the debtor’s assets that can be used to pay debts

To provide the debtor with a new financial beginning by discharging their consumer debts

However, for the debtor, the two most significant benefits of bankruptcy are:

Relief from the harassment by creditors once those consumer debts are discharged or erased

Protection of any exempt property that the debtor may hold

For those filing chapter 13 bankruptcy, the benefits are not generally as striking, but they will provide relief in the long run, because with the reorganization it provides, the debtor will be able to pay off all of their consumer debts, albeit more slowly, over a three to five-year period.

Who Should File

There are not always easy answers to who should file bankruptcy.  First, it is important to find out who is eligible to file chapter 7 bankruptcy.  The new “means test” makes it more difficult to qualify than in the past.  Those who are qualified may find that it is an appropriate choice for them.  Those who are ineligible for chapter 7 may find the help they need in chapter 13. 

There are a number of alternatives to bankruptcy, and since one of the new requirements for those seeking to file chapter 7 is obtaining credit counseling, they may find that all they really need is a budget, some financial restraint, and patience. 

Others may find help in debt settlement plans or debt management counselors.  Putting their money and their debts in the hands of a reputable third party may help them live more responsibly, find that they can satisfy their living requirements, and set some aside to pay bills.

The general formula states that someone is a more likely candidate for bankruptcy:

• The older they are
• The greater their number of dependents
• The larger their debt
• The smaller their cash reserves or retirement savings
• The greater the dollar amount of their non-dischargeable debt

There are many places to find wise counsel about how to handle unmanageable debt.  Legitimate credit counselors to financial advisors, and possibly most relevant, a bankruptcy lawyer.  Acquainting this legal and financial expert with a debtor’s situation even as they’re making a decision about filing for bankruptcy can pave the way to obtaining the legal advice that is generally required for those who do decide to file a bankruptcy petition.