Why File For Bankruptcy?

Jun 13th, 2014 | By | Category: Info

There is no minimum debt required to file for bankruptcy. Since bankruptcy is a consumer protection program, intended to protect all consumers, the amount of debt have to file for bankruptcy is relative to a person’s capacity to pay their debts, or relative to the consumer. Folks have successfully filed for bankruptcy that were in debt for just a few thousand dollars and others have filed that were in debt for millions of dollars. Just because a person’s debt may seem minimal to the majority of us, it is that the person cannot manage to pay back their debt that is the main determinant factor in bankruptcy cases.

Low income families that live under the poverty line have just as much trouble paying off their debts as Wall Street investors who made one too many bad decisions. In both of these cases a person may find themselves living paycheck to paycheck and slowly drowning in higher and higher debts. Each case has a very strong chance of successfully filing for bankruptcy.

When you file for a chapter 7 bankruptcy, all the debt you eliminate is tax-free. As I mentioned previously, when you settle your debts you are required to pay income tax on the amount the credit card company forgave. You pay no income tax at all on all the debt you eliminate in bankruptcy by contrast.

Broader Discussion on Why File For Bankruptcy

The biggest drawback to bankruptcy is only if you have assets they could be put at risk in bankruptcy. That is why you need to talk to a qualified Bankruptcy Attorney New Jersey and find out if either of your assets will be at risk before you file for bankruptcy. In New Jersey for example, you can continue up to $20, 000 per individual in the equity in your house according to the New Jersey bankruptcy exemptions. Therefore, if you’re single and you have let us say $50, 000 of equity in your home, then if you were supposed to file for a chapter 7 bankruptcy you may lose your home (although you’ll receive the $20, 000 of equity you can keep in your home). Therefore, before you file for bankruptcy you need to play an accounting of all of your assets such as any business you own, boats, or real estate, vehicles. Then figure out if either of the items have any equity in them. If they do, check your state’s bankruptcy exemptions and determine if your equity is within the allowed amount. If they’re so you can freely file for bankruptcy without your assets being affected. If some of your assets are higher than the allowed equity amount then you need to talk to a bankruptcy lawyer to find out if there is one thing you can do to keep the asset in bankruptcy. Sometimes when clients have assets that will be assigned by bankruptcy, I ask them whether they’re willing to trade that asset to get rid of all the debt. If the client will discharge let us say $75, 000 worth of debt but will lose a car with $6, 000 of equity in it-it is obvious that the client is still coming out way ahead by filing for bankruptcy.

While it is true to say that a person will need to have a clear understanding of all of their debts before filing for bankruptcy, no person should worry that they ‘don’t have enough debt’ to successfully file.

When filing for bankruptcy a person will have to demonstrate why they do not think they can pay their debts. Common reasons include divorce, unemployment, and extreme family emergencies. Sometimes just emergency car repairs will be sufficient to push them to the extent of considering bankruptcy, for low income individuals.

Even though there’s no minimum amount of debt have to file for bankruptcy, making the decision to file is a relatively big decision that should be thought through fully. Never rush in to a bankruptcy as an easy way out. A person who is thinking of filing for bankruptcy should do what they can to handle their debts through programs like debt modification or consolidation. On the same note, nobody can make the decision to file for someone else, so, if time is of the essence, or if bankruptcy is considered to be the only last option, it is a measure that should be taken no matter what amount of debt a person has. A bankruptcy is useless unless a person makes the attempt to use it much like every other program.

The good thing about the bankruptcy program not requiring a minimum amount of debt is that the credit system is less likely become inflated by abuse from folks digging themselves deeper and deeper into debt just to make the minimum cut off. Folks can make some pretty rash decisions in moments of desperation. However, digging oneself deeper into debt as a strategy of getting out of debt is a decision that is counter productive and can have severe consequences. In the case that a person is approved for bankruptcy but still have to pay back a part of their debts, that person will be met with a higher settlement amount as the amount of their debt increases. More debt equals a higher settlement unless a person requests a complete course of their debts, not requiring them to pay off any at all.

QUESTION: how to file for bankruptcy?
I need to file bankruptcy. Can anyone ever buy a house after filing ? How do you get credit again?

  • smom….Yes, you can purchase a home after filing, some have done it as little as six months after filing, with excellent income and a large down payment. It takes good solid hard work to re establish credit. A secured credit card with a low limit and over time with good payment and no late charges, you will increase your credit limit and slowly establish your credit again. I filed and discharged in 02/08 and bought a brand new harley davidson motorcycle joint with my hubby, whose credit is so-so, we just traded and financed a larger bike and was granted a loan with no problems at all. The percentage rate is a little higher, the only thing we needed as proof was income for the last 4 weeks and proof of w2's. It takes a lot of solid payments and willpower, but it can be done. If you need additional bankruptcy information I suggest you check out the bankruptcy official website at www.usbankruptcy.gov , this is an excellent site for information on each chapter, how they work and what is required from you and has been a great source for someone that doesn't know alot about what the bankruptcy consists of. Good Luck!

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