Only bankruptcy will solve certain financial problems. Bankruptcy remains the first and best choice for many common cash-flow and debt issues. Avoiding bankruptcy when it is the smart course of action often does nothing more than make for more difficult outcomes. But there are certain circumstances under which you should NOT file for bankruptcy.
If You Can Afford to Pay Your Debt
Chapter 7 Bankruptcy. Your credit will show a Chapter 7 filing for ten (10) years. If you make enough money to afford repaying your debts, then you should do that. You may forego some money in the short-term, but avoiding bankruptcy when you can afford to repay may pay off for you big time in the long-term.
Chapter 13 Bankruptcy. If you can afford to repay your debt, but not in less than five years, then consider a Chapter 13 bankruptcy. Your attorney will propose a repayment plan suitable to your budget. And a Chapter 13 bankruptcy will remain on your credit report for only seven (7) years.
If You Are Uncollectible
You may make very little income or have no income at all. Social Security may be your only source of income. Your credit score may already be very low. If you have only enough money to pay for your most basic expenses, as well as those of your dependents, then you may be an “uncollectible” debtor.
If a creditor deems you to be uncollectible, then bankruptcy might not be the best choice for you. Questions of whether or not a person should file bankruptcy due to uncollectible status usually occur near end of life.
If You Have Mostly Student Loan Debt
Chapter 7 bankruptcy eliminates student loan debt only in the rarest of circumstances. If you decide to file a Chapter 7, it will not be to discharge your student loans. Chapter 7 won’t help you at all. Student loans are nondischargeable.
Still, Chapter 13 bankruptcy may help if your student loan payments exceed your living expenses. You can use Chapter 13 to reduce or delay altogether your monthly student loan payments obligations during the term of your Chapter 13 plan. Any balances remaining on your loans after the Chapter 13 bankruptcy is over, however, must be repaid.
If You Cannot Exempt All of Your Assets
Most people do not have to worry about unexempt assets. Most Chapter 7 bankruptcy debtors have “no-asset, no-distribution” cases. Even if you own some valuable property, in many cases it will not be financially feasible to liquidate it. The amount of your debt in relation to the value of your assets is a helpful but not entirely reliable indicator.
If you own many valuable assets, however, like real estate or cars or financial instruments of any type, then you must carefully weigh whether bankruptcy is the right choice for you. Likewise, if you are expecting an inheritance or have a valuable legal claim, disclose these assets to your bankruptcy lawyer right from the outset. Your bankruptcy lawyer will analyze how they fit into your larger financial picture.
When You Should NOT File for Bankruptcy
Bankruptcy might not help with child support. In some case, bankruptcy doesn’t help with eviction. Bankruptcy is not one-size-fits-all, and bankruptcy doesn’t fix every problem. A good bankruptcy lawyer will tell you when you should file for bankruptcy. But a great bankruptcy lawyer will tell you when you should NOT file for bankruptcy.