Deciding to file a bankruptcy case depends on many factors: the amount of debt you owe, whether lawsuits have been filed, whether a garnishment is active, and whether you own unprotected property all come into play.
As a preliminary answer, the bankruptcy code mandates NO MINIMUM DEBT REQUIREMENT to file a bankruptcy case. Theoretically, you could file a bankruptcy with little to no debt, and assuming you meet all other requirements, you would receive your discharge under 11 U.S. Code § 727 in a Chapter 7.
That being said, how much debt do you owe before you should file a bankruptcy case? This is a more complicated answer, and boils down to two questions: 1) can you keep up with your debt only using your income, and 2) will the payments resolve your debt entirely within a reasonable amount of time.
1) Can you consistently pay your debt with your income alone?
Take a look at your gross monthly income. Your gross income should be able to pay your tax withholdings, include a retirement contribution, and pay any insurance before it even hits your bank account. With your net income, you should be able to pay your rent or mortgage, food for you and your family, vehicle payments, an emergency savings, and other miscellaneous household expenses you may have. If paying the remainder of your debts puts your monthly budget in the red, without an influx in cash or assets, you’ll have to continue living off of credit to keep up. When the entirety of your income is not enough to meet your monthly living expenses and pay the debt you owe, it might be time to seriously consider a bankruptcy.
2) Will your payments resolve your debt entirely within a reasonable amount of time?
Let’s say that you’ve figured out that your budget can pay your debts on time, with just barely anything left over every month. You may notice that with each payment only a small percentage of the payment ends up being applied against principal, and you’re paying 90% or more towards interest. Depending on the amount you owe, it may be years before those cards will be paid in full, and you will be debt free. In this situation, you may be just one unexpected expense away from your financial plan from falling apart. Filing a bankruptcy when you know you won’t be able to pay off your debts in any reasonable amount of time could be a good option in this situation. The alternative is throwing money at debt you’ll never be able to pay off, then filing a bankruptcy when that plan becomes unsustainable.
While these are the two major (although non-exclusive) factors to take into consideration when deciding whether to file a bankruptcy case. Garnishment or a potential foreclosure may be other factors. Whether bankruptcy makes sense for you is a unique question that only you can make the judgment call on. The counsel of an experienced bankruptcy attorney is important when making that decision, and an experienced bankruptcy lawyer will walk you through bankruptcy alternatives before recommending any course of action.
At Kootenai Bankruptcy, our experienced attorney will be able to walk you through each option, and move forward with the option that is best for you. Call or text us today at (208) 719-0232 and we can discuss your options.