When to File Bankruptcy – Or Not: A Guide to Determining Your Next Step

Filing for bankruptcy isn’t an experience anyone looks forward to. There are entire blogs and financial management course dedicated to avoiding it. However, the reality for many Americans is that bankruptcy may be the best option for their individual scenario. 

Are you one of these people? Are you wondering if bankruptcy is right for you?

Here is a collection of tips for figuring out when to file bankruptcy – or not – to help you make the right decision for you! 

When to File Bankruptcy is a Bad Idea 

Bankruptcy is not a decision that should be taken lightly. If you’re considering making that move, talk to your legal counsel first. You may be facing a scenario in which bankruptcy is simply not a good idea. An example of this kind of situation might be facing difficulties in other areas of life. Some people feel panicked when dealing with lawsuits related to other issues, and they may turn to bankruptcy as a way of protecting themselves from other litigation. All this does is further complicate the issues you are already facing. Do not file for bankruptcy unless the bankruptcy itself is your primary motivation. 

Some of the most prominent reasons not to file for bankruptcy are advised against because they can lead to a judgment of bankruptcy fraud. How can someone be charged with bankruptcy fraud? 

 A person knowingly created large amounts of debt with the understanding that they would deal with that debt by filing for bankruptcy. 

 A person hid property, money, or other assets by giving them to a family member or friend to keep them protected during bankruptcy proceedings. 

 A person knowingly supplied inaccurate information to a creditor in order to obtain credit. 

 Fraud charges are being brought against a person in any other form, such as stealing business money to cover personal costs, committing checking fraud, etc. 

Any debt relief attained through fraudulent bankruptcy will ultimately be overturned and you will legally be responsible for fines and even possible jail time. This can reach heights of a quarter million dollars or more and twenty years in jail! Don’t risk your future for a quick financial fix with fraud! 

When Bankruptcy is Unnecessary or Isn’t Helpful 

Sometimes when to file bankruptcy or not isn’t as clear as these black-and-white examples. There are many cases in which bankruptcy can be filed but isn’t necessary or won’t serve those filing in a positive and impactful way. Some scenarios that might make it impractical to file bankruptcy include being judgment-proof – when you have no assets or property from which creditors can collect – or having already filed bankruptcy in recent years. Oftentimes when the latter is the case, you are not entitled to any more debt relief. This means that even if you do file for bankruptcy, the results will be minimal if not nonexistent – and nothing but a waste of your time. 

Remember, being “broke” doesn’t equate to being bankrupt. If you’re having trouble understanding the difference, chat with a lawyer in your area for help. 

When to File for Bankruptcy - Or Not - bankruptcy is a right choice

When Bankruptcy is the Right Choice 

While avoiding the need for bankruptcy is always the most prudent choice, sometimes there is no other option. The most common reasons for choosing bankruptcy include: 

 High credit card debt, usually from multiple sources. 

 Inability to pay even the minimum amount due on open lines of credit. 

 Preventing foreclosure of a home or repossession of a vehicle. 

 Money has run out for paying off debt and no more money is likely to be coming in anytime soon. 

 Vast amounts of medical debt. 

 Your wages are about to begin being garnished. 

 Your only option left is to tap into your pension or retirement benefits to repay debt. 

 You want to avoid a lawsuit brought against you by a creditor, medical agency, or other entity. 

These are not the only reasons for filing for bankruptcy, nor is bankruptcy guaranteed to be a sure-fire fix for any of them. The situations above are simply guidelines to help you determine whether you need to consider filing or continue to look for ways to avoid it. 

Additional Thoughts: Emotional Impact 

Filing for bankruptcy can have a serious emotional weight for many people. When other factors are not enough for determining when to file bankruptcy or not, you should take your own emotional preparedness into consideration. 

Why do people hesitate to file, even when it may be the best option? One major reason is credit impact. Filing for bankruptcy will linger on your credit report for seven to ten years. While the impact will lessen over time, you may face difficulties in using credit for several years after closing your case. This can make it hard to find decent interest rates on a car or home purchase, to get accepted on applications for rental properties or lines of credit and more. Some people just aren’t emotionally ready to deal with those difficulties. 

Others who choose not to file for bankruptcy may do so because they are afraid of what they might lose in the process. While it’s true that bankruptcy can strip you of some of your major possessions or property, this isn’t necessarily going to be the case in your situation. In fact, many home and vehicle owners are able to hang onto these assets – as well as a certain amount of actual money – during bankruptcy. Some assets are exempt from being considered when your bankruptcy settlement is determined; discuss these exemptions with a legal professional to help you decide if the impact of bankruptcy might actually be far less than you initially feared. 

Getting the Help You Need 

Determining when to file bankruptcy or not isn’t easy. Getting the help you need to do so should be. When you’re against the wall financially and legally, look to a legal professional database to find the experienced guidance you need near you. Moving past this hurdle might be as simple as getting the right advice from someone who knows bankruptcy well. Don’t let your financial future remain up in the air.