Should I File Bankruptcy?

Many people ask me if they should file for bankruptcy.  You may have financial and personal questions about filing bankruptcy.  Here, I address the most common questions.  If you don’t see your question answered here, please feel free to contact me and we can talk about whether bankruptcy is right for you.  I will give you the facts and analyze the situation without charge or obligation to you.

Financial Considerations:

Financial problems are what bring people to my office.  There is no “minimum” debt necessary to file bankruptcy.  The most important consideration is whether you would benefit from a bankruptcy filing.

  • After you pay your bills each month, do you have any money left over?
    • If your answer is no, then you should consider filing bankruptcy.  If you are just breaking even each month, then one financial setback could push you into default.
    • Once bills go into collection it becomes even harder to get caught up.  Bankruptcy gives you a fresh start and get rid of things like medical bills, credit cards, payday loans, and other debts so that you can get a fresh start.
  • Is something driving you into bankruptcy?
    • Are you being garnished?  A creditor can take up to 25% of your paycheck.  Often times, once you finish one garnishment, another will start up.  Bankruptcy stops garnishments and costs less than doing nothing.
    • Are you in foreclosure?  Do you want to try to save your house or do you just need time to move out?  Either way, bankruptcy can help.  A chapter 13 bankruptcy allows you to save your house and even eliminate second mortgages.  A chapter 7 bankruptcy can buy you extra time to stay in your house while you get your finances in order, find a new place, and save for the costs of moving.
    • Lost your driver’s license?  If you lost your license because you were an underinsured motorist, chapter 7 will restore your driver’s license.  If you have traffic tickets that are more than 3 years old, then chapter 7 will restore your driver’s license.  If you have tickets that are less than 3 years old, a chapter 13 will restore your driver’s license.  You can get your license back within days of filing bankruptcy.
    • Too much creditor harassment?  Bankruptcy stops the phone calls, the letters, the voicemails, and all of the harassment that comes with too much debt.  You can answer your phone again, without worrying about who is calling.
    • How much debt do I need to file bankruptcy?  There is no minimum amount of debt for a bankruptcy case.  It depends on your situation.  If the debt is causing problems for you, then you should consider bankruptcy.
    • What will bankruptcy do to my credit score?  If you are considering bankruptcy, then your credit score is already in trouble.  If it hasn’t begun to drop, it will soon.  For most people in your situation, bankruptcy will actually help you qualify for loans in the future.  For more information, you can read my article on bankruptcy and your credit score.

Personal Considerations:

You may have personal considerations about filing bankruptcy.  For instance, you may be concerned that bankruptcy is somehow “cheating” or “not keeping a promise,” you may even be embarrassed about filing bankruptcy or feel that it is immoral.  These are questions that all of my clients struggle with in one way or another.

  • Bankruptcy is Part of the Original US Constitution:  When scholars study the Constitution, the first question is “was this part of the original US Constitution?”  This is because they want to know whether our founders intended America to work a certain way.  Well, our founders but The Bankruptcy Clause in the US Constitution provides that Congress has the power “[t]o establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States.”  Art. I, sec. 8, clause 4.
    • Many of our founders experienced severe financial difficulty or even bankruptcy during their lives.
    • Our founders realized that bankruptcy is necessary for a healthy economy.  Under the laws of England, if you took a business risk and failed, you risked going to jail for your debts.
    • Bankruptcy is Good for the Economy:  Our economy depends on money being spent on goods and services.  The problem is that banks don’t spend money.  So when someone is paying off debts, all the money goes to banks.  If you have too much debt, you can’t participate in the economy.  When factories are buying machinery and raw materials, when employers are spending money on employees, and when you are buying a new dishwasher the economy gets stronger.  Bankruptcy allows people and businesses to have more money to put into the economy.
    • Bankruptcy is Part of Every Contract:  There is a saying, “every contract is written in the shadow of bankruptcy.”  That means that anytime you get a credit card, buy a car, or buy a house, the agreement assumes that there is a risk that you will file bankruptcy.  All the banks and lenders know about bankruptcy.  That is part of the reason they charge interest.  You aren’t cheating anyone or doing anything unexpected.
    • The Bible Says That Bankruptcy Is Moral:  Everyone knows that lying is wrong and that God does not look favorably on those who lie.  Some people are afraid that bankruptcy is immoral or a sin, because it’s like lying to creditors.  But that’s just not true.

The Old Testament requires lenders to forgive debts:

“…in the seventh year you shall let [your Hebrew slave] go free from you.  And when you send him away free from you, you shall not let him go away empty-handed; but you shall supply him liberally from your flock…”(Deuteronomy 15:12-14)

In the New Testament, the Gospel of Luke shows that the forgiveness of debt is part of Christ’s teachings:

“And when they had nothing with which to repay, he freely forgave them both” (Luke 7:42).

If you tell the truth in your bankruptcy petition, there is nothing immoral about filing bankruptcy.

  • Bankruptcy Is Embarrassing, Will People Find Out I Filed?  I hear that a lot from clients.  Your name will not be published in the newspaper.  The only people that get notice of your bankruptcy filing are the people you put on the bankruptcy petition.  The bankruptcy filing is a public record, but someone has to create a PACER login and pay to search.  It’s likely that you have a friend, neighbor, or relative that’s filed bankruptcy and you don’t even know it.