SHOULD I FILE FOR BANKRUPTCY?

Whether to file bankruptcy can depend on many different things.  For some, bankruptcy can be a first and only option, or a last resort.  

Who is a good candidate for bankruptcy?  
If you are considering filing bankruptcy, you probably have too much debt to repay.  Chapter 7 bankruptcy allows you to liquidate or eliminate this debt without having to repay discharged debt.  Chapter 13 bankruptcy allows you to repay some portion of the debt you owe for a 3-5 years.   

Chapter 7 candidates typically have minimal assets, modest to low income, and high credit card or other consumer debt.  In fact, when we speak to potential bankruptcy clients, our main points of inquiry are:  income, assets, and type of debt.  

• Assets:  bankruptcy allows you to keep your property up to certain limits known as bankruptcy exemptions.  Sometimes these exemptions can protect all of your property during bankruptcy.  Filing chapter 7 bankruptcy puts your assets at risk if the value of these assets exceeds the applicable state or federal exemption for the asset category (e.g., homestead exemption, motor vehicle exemption, clothing exemption, etc.).   Some states allow debtors to choose between federal and state bankruptcy exemptions.  State bankruptcy exemptions vary and you should speak to a local bankruptcy attorney about these limits.  Federal bankruptcy exemptions include the homestead exemption ($23,675), and the motor vehicle exemption ($3,775).
• Income:  your income must fall below the applicable median income for your county of residence and household size.   For example, the median income for a family of 4 in Michigan is approximately $82,000. If your income exceeds the applicable median income, you will be required to take the bankruptcy "means test" to determine whether your disposable income is sufficient to repay some portion of your debt.  
• Type of Debt:  bankruptcy can eliminate certain types of debts including, credit card debt, medical or hospital bills, mortgage debt, and/or automobile debt.  However, filing chapter 7 bankruptcy does not mean you get to keep your home or automobile if there are valid outstanding liens on this property.  Bankruptcy can eliminate your personal liability to repay this debt, but the lien will survive.  Thus, you will be required to keep making your regular monthly payments if you wish to retain certain property.   Filing bankruptcy allows you to "redeem" certain property such as your automobile.  In a nutshell, this means you can pay the creditor the current fair market value of the vehicle instead of the current balance (which may be significantly higher than the current value).

Who is not a good candidate for bankruptcy?

• Individuals who do not meet the above criteria can consider chapter 13 bankruptcy or debt settlement.  
• Filing chapter 13 bankruptcy can allow you to retain property beyond the applicable bankruptcy exemptions, but you will be required to make monthly payments to the bankruptcy trustee for 3-5 years. 
• Debt settlement can be an attractive option if you have relatively high assets or income, or a low amount of debt (>$10,000 or below).   Debt settlements are agreements to pay less than the full balance owed.   Individual debt settlements can vary, but are typically between 20-50% of the balance owed.

Is bankruptcy a last resort?
Depends.  Some people can avoid filing bankruptcy by agreeing to debt settlements with their creditors or by pursing creditors and debt collectors who violate the Fair Debt Collection Practices Act (FDCPA) or the Telephone Consumer Protection Act (TCPA).   The key is to plan as early as possible.  This means before you default on credit card debt or shortly after defaulting on credit card debt.  You need to know your rights before dealing with abusive debt collectors.

Debt collection harassment is a serious issue.  If you are receiving unwanted collection calls, or if debt collectors are sending you abusive harassing, or threatening collections letters, you may be entitled to damages against abusive creditors or debt collectors.  Some individuals have eliminated thousands of dollars in debt and recovered thousands more against creditors and debt collectors who violate federal consumer protection laws.  You should speak to a knowledgeable consumer protection lawyer to learn about your rights under the Fair Debt Collection Practices Act and the Telephone Consumer Protection Act.  

Our Michigan bankruptcy and consumer lawyers are happy to answer any questions you have.  Please contact us by using our contact form at the bottom of our website.