When Should You Consider Bankruptcy?

If you’re researching bankruptcy, chances are you are deeply in debt, and cannot make the payments on your monthly bills. On top of that, you may have little or no income, which means you are falling deeper into debt every month instead of paying it off.

The Benefits of Bankruptcy

Bankruptcy is intended to give you a fresh start – to wipe out your debts and allow you to lower your monthly bills to a point that you can afford. When you file bankruptcy, the primary benefit is that many of your debts are simply excused. Typically you can eliminate unsecured debts like credit cards, medical bills and personal loans. Secured debts like car loans and mortgages can often be eliminated, but you may need to give up the property that secures the loan (your car or home). There are some types of debt that bankruptcy typically can’t eliminate such as student loans or debts owed to a government organization, but you should speak to a local attorney to discuss your circumstances.

Who can File Bankruptcy?

Bankruptcy is open to every American, but there are specific guidelines when it comes to your income and your levels of debt that determine whether you can file. A local attorney will start off by putting you through two tests to determine whether you are eligible.

Means Test

The bankruptcy means test measures your income and your ability to pay your bills. Your income will be compared to the median (or average) income for people in your state. If your income is below the median income for your state it improves your chances to file bankruptcy, but it isn’t that simple. Your attorney can help explain the details in your area.

Credit Counseling

You will also need to take a credit counseling course. This course is intended to educate you about your options other than bankruptcy. You may learn about alternatives through your credit counseling course that allow you to handle your debt without filing for bankruptcy. Even if you don’t find an alternative, the course will help give you skills that will be useful as you rebuild your credit after filing for bankruptcy.

If you pass both of these checks, your attorney will let you know if there are any other hurdles to filing for bankruptcy. These are the only typical tests that you need to pass, but laws vary by state and each case is different.