Filing bankruptcy is not the right solution for every individual, says James Kutkowski, who runs The Law Offices of J. Kutkowski, Esq. Many people could benefit from other forms of repayment plans, while others need to know which chapter to file when no other option is available. The solution, Kutkowski says, is to always enlist the services of a qualified bankruptcy attorney, one who is not scared to tell you that bankruptcy is not right for you.
Bankruptcy is not for everyone. A lot of bankruptcy attorneys wouldn’t appreciate me spouting off like this, but not everyone needs bankruptcy.
I had a potential client in my office who had $5,000 in credit card debt. The collection agencies were calling him, and one of them was planning to sue. It would have been easy to take his money and file a bankruptcy case. But he didn’t need bankruptcy, as he was making $50,000 a year. He just needed to repay his debt.
It may sound cold, but the reason that you don’t file bankruptcy on something as frivolous as $5,000 is because down the line, you may find yourself in an actual bind and really need bankruptcy. Then you would find out that solution is no longer available to you, because you have already used it - and used it foolishly.
Which Chapters to File
My general rule for bankruptcy depends on which chapter of bankruptcy is going to be filed. If your debt outstrips your annual income by more than 30%, and you qualify to file Chapter 7 bankruptcy, then that may be the right solution for you. A Chapter 7 bankruptcy requires you to liquidate your assets in return for debt cancelation, and in my experience, with that level of debt, it becomes nearly impossible to pay your debts down.
Think about what would happen if you were behind on your mortgage payments and your lender was no longer accepting payments. The lender would then wire the past-due amount and you wouldn’t have it, and by the time you had saved it up they would have foreclosed — and the debt pile would have gotten even higher. In that case, you would have a reasonable chance of completing a Chapter 13 bankruptcy, which in essence is a repayment plan.
This makes it even more clear. The perfect candidate for Chapter 13 bankruptcy is a person who cannot catch up their mortgage on his own. The perfect candidate for Chapter 7 bankruptcy is someone whose unsecured debt is more than 30% of his annual income.
When Chapter 13 Is a Bad Idea
Now, some factors would make you a bad candidate for Chapter 13 bankruptcy. I generally won’t take a Chapter 13 bankruptcy client who is more than 90 years old. Even the coldest of mortgage lenders are hesitant to take an elderly person out of his home, and often a deal can be made without Chapter 13 bankruptcy in order to allow them to stay in his home.
If you have a lot of IRS debt, Chapter 13 bankruptcy may not be the solution to catch your mortgage up, because the IRS debt will need to be resolved in a Chapter 13 plan. The IRS always gets the money it is owed, so in this case a Chapter 13 bankruptcy may not be the option for you.
Experienced Professional Needed
It really takes an experienced professional and qualified bankruptcy attorney to decide whether bankruptcy is really the right solution for your needs, and how and which chapter to file.
If you see a bankruptcy attorney who is busy filing bankruptcy after bankruptcy, ask the reason why. If the attorney cannot give you a solid reason why you should file bankruptcy, as opposed to taking an alternative route, you should run away as fast as you can.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
