Should you file bankruptcy?

Bankruptcy may be an option to rescue you from financial distress, but the risks may not be worth the reward.

Should you file bankruptcy?

Should you file bankruptcy? 

As a Michigan State University Extension educator and a Michigan State Housing Development Authority-certified housing counselor, it is not my place to direct a person to file or not to file bankruptcy.  Whether or not to file bankruptcy is dependent on your unique circumstances, and if you are considering filing bankruptcy it is strongly urged that you to talk to a bankruptcy attorney. 

However, if the headline caught your attention, you might have an interest in the subject or you might be struggling financially and weighing bankruptcy as an option. While I am not offering any specific legal advice, I am a licensed attorney who has filed hundreds of bankruptcy cases.  Since first entering private practice in 1998, I have met with hundreds of people each year who have asked the specific question, “Should I file bankruptcy?”  This is the first of a series of articles that will explore that question in depth.

First, some good news.  For the years 2011 to 2012 the number of bankruptcy filings decreased in most of the United States.  In West Michigan, where I have conducted the bulk of my practice, there has been a dramatic drop in bankruptcy filings over the past several years, and the trend appears to be continuing.  In addition, Michigan unemployment rates continue to decline.  However, despite the good news, thousands continue to file bankruptcy. 

So, what is bankruptcy?  The basic definition of bankruptcy from Merriam-Webster is that bankruptcy is the condition of being bankrupt: a condition of financial failure caused by not having the money that you need to pay your debts (emphasis added).

I used to tell clients, if they had a financial mess and were unable to clean it up on their own, bankruptcy may be an option.  The questions arise when one attempts to define “financial mess.”  How much debt is too much?  How far behind on bills is too far behind?  Is there a minimum amount of debt required before you are allowed to file bankruptcy?  Are you worried you make too much money to file bankruptcy?  Or are you afraid you will lose all of your property if you file?  What is Chapter 7 bankruptcy; or Chapter 13 bankruptcy?  In the next series of articles, I will explore these questions as well as the ultimate question: “Should I file bankruptcy?”

First, avoid the financial mess.  Pay your debts on time.  If you are struggling to pay your debts on time, seek help early on.  Old fashioned common sense says spend less or make more, or do both.  The problem is how to spend less or make more, or do both.  If you have been unemployed or underemployed for a long period of time, it is especially difficult.   A good place to start is with financial counseling or money management classes.  Studies have shown that people who received some financial management counseling were more likely to stay current on debt payments.  Michigan State University Extension offers a variety of money management programs throughout the state of Michigan, and has many news stories and resources on personal finance.  

Other articles in this series:

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