Bankruptcy is an option for those who have tons of debt and are considering their options. It can provide a fresh start, but it’s not the right solution for everyone. There are many factors that go into whether or not bankruptcy is a good idea, so let’s take a look at some of them!
1. How to know if you qualify for bankruptcy?
If you have unpaid bills or are behind on payments, bankruptcy might be a good idea. Bankruptcy can help prevent creditors from trying to collect the debts owed, and it will give debtors some relief in terms of reduced interest rates for credit cards.
Bankruptcy is not an option if there are assets that could cover all or most of the debt incurred (such as retirement funds).
2. Credit Card Debt – When is too much?
The amount of credit card debt that would qualify you for bankruptcy is different depending on the person, but usually, a total outstanding balance of $15,000 or more will be enough.
However, just because you have these debts doesn’t mean that it’s in your best interest to file for bankruptcy. It could make sense if there are other factors involved besides just the amount (i.e., high rates per month).
3. The pros and cons of filing bankruptcy to discharge debt
The pros: you will be able to make a fresh start without the burden of high monthly payments.
The cons: your credit score could be affected for up to ten years, and bankruptcy stays on your record indefinitely. You might also have trouble obtaining loans in the future, which can affect things like buying property or even getting a new job.
Suppose there are other factors involved besides just the amount (i.e., high rates per month). In that case, it may not always make sense for people to file bankruptcy if they have any equity left in their home or retirement funds available that would cover all or most of what is owed today.
4. Is there an alternative to filing bankruptcy?
No one ever wants to file for bankruptcy because it’s a big step that often comes with not-so-desirable consequences. But sometimes, the debt is just too much, and you need to find an alternative way out of your financial crisis.
With that said, filing for bankruptcy has its pros and cons.
Pros: The most obvious pro of filing for bankruptcy is that it will provide a fresh start and allow you to wipe the slate clean, so to speak, financially.
Cons: The cons are that there is a stigma with bankruptcy. No one wants to be perceived as irresponsible and have no ability to handle their own finances, so it can have negative consequences on your credit score or employment opportunities.
5. The Debt to Income Ratio
The debt-to-income ratio measures the percentage of your income going toward paying off debts each month. If you’re in danger of missing payments, then filing for Chapter 13 may not make sense because the courts will require an initial payment plan immediately due to lack of funds.
On average, if someone has more than $100k worth of unsecured debt, then they might only get a few months of relief from their existing obligations before beginning a Chapter 13 repayment plan. Which doesn’t seem worthwhile given how much time it takes to complete a repayment plan.
If you are in a more dire situation, then Chapter 7 might be for you. Especially if your income is well below the median household income, or else it would take too long to repay without risking accumulating new debt while completing repayment of current debts and still have enough money left over to live on.
To determine whether filing bankruptcy will make sense for your financial situation (or not), we can calculate what percentage of monthly gross pay goes toward paying off outstanding unsecured balances at this time using our online calculator. It’s important to note that many people mistakenly believe that they can’t file bankruptcy because their credit score is too low or because they don’t earn much money. You may give us a call at (865) 938-0733 or contact us for a free consultation.
In reality, anyone with an average-sized paycheck who has outstanding debt can file bankruptcy.
This includes doctors and lawyers with big law firms who might have annual incomes over $500k but still have significant amounts of debt arising out of unsecured credit card debt, mortgages, and their personal lines of credit.
The bankruptcy process is designed to protect people with low incomes to get a fresh start by erasing unsecured debt. It also offers protection for professionals who might have high earnings but too much unsecured debt. This includes doctors and lawyers with big law firms who might have annual incomes over $500k but still have significant amounts of debt arising out of unsecured credit card debt, mortgages, and their personal lines of credit.
5. Things to consider before deciding on whether or not to file for bankruptcy
a.) How much debt do I have?
b.) Do my assets cover the total amount of back debts as they stand today?
c.) Can I afford a bankruptcy attorney to file for me, or will it take too long and cost more money in interest charges before filing?
We offer low monthly payments, and we understand that those filing bankruptcies are not doing so because they are flush with disposable income.
If you have the means to pay your debt off, do it and then take legal steps to protect yourself from future creditors. If not, bankruptcy is a good option for those who qualify. And our expertise can help make this process as quick and painless as possible so that you can get back on your feet quickly!
Suppose there are other factors involved besides just the amount (i.e., high rates per month). In that case, it may not always make sense for people to file bankruptcy if they have any equity left in their home or retirement funds available that would cover all or most of what is owed today.
6. Steps in the process of filing for Chapter 7 or Chapter 13 Bankruptcy
An attorney, trustee, or both will interview the debtor to decide if they qualify for either type of bankruptcy.
If so, then documents and information related to their income, assets, and debts are gathered and submitted to the court. A plan is created that can help them pay back what they owe over time.
A date is set for creditors’ meeting where everyone who has been hurt financially from this person’s actions gets together with one another at a courthouse conference room before going into the judgement session.
If you’re still unsure if filing bankruptcy will make sense for your financial situation (or not), give us a call at (865) 938-0733 or contact us for a free consultation, we would like to help you work through the numbers.
