Our Bankruptcy Attorney Blog

Whether or not bankruptcy is the right financial move to make completely depends on one’s individual financial circumstances; therefore it is impossible to say if it is a good idea for any particular person without knowing their specifics. Filing for bankruptcy is obviously a major undertaking with long lasting and far reaching ramifications for not only the debtor’s finances, but many other aspects of their life as well, so it is a move that should not be taken likely. Remember that today many people use an individual’s credit history to get a sense of the person, from potential landlords to potential employers and few things look worse on a credit report than a bankruptcy.

Since 2005 it has been a legal requirement for anyone filing for bankruptcy protection to first receive credit counselling from a government approved credit counselling agency. While this reform has been very unpopular since it requires the debtor to pay extra money before they even have the option of filing it is also quite helpful. Since most of the credit counselling agencies that are able to issue the requisite ticket are non-profit organizations, they are fairly unbiased and will review the individual’s current financial situation in close detail to determine whether or not bankruptcy is the right way to go. Therefore, since this counselling is required anyway, it serves as a good way to help an individual determine if bankruptcy is the best option under the circumstances.

People considering bankruptcy should also keep in mind that there are two different types of bankruptcy that apply to most individuals as well: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is the type of bankruptcy that most people think of first, where their non-exempt property is liquidated to pay some of the creditors and the rest of the debt is discharged. This may or may not be the best course of action, but is usually most applicable to people with fairly simple financial situations, extremely limited income, and few solid assets. 

Chapter 13 bankruptcy is more complicated and essentially results in a court ordered restructuring of the debtor’s liabilities, which are all paid off over the span of the three to five year Chapter 13 repayment plan. In many cases, Chapter 13 makes much more sense, especially if the debtor has significant assets and a regular income. Although Chapter 13 bankruptcy remains on the debtor’s credit report for a full ten years like Chapter 7 bankruptcy, it also tends to look better to most lenders since most of the actual debt should be paid in full through the Chapter 13 process.  

There are definitely times when bankruptcy is by far the best option for a debtor, but there are others when this might not be the case. Further, since few things look worse than a bankruptcy on someone’s credit report, it is a decision that should not be taken lightly. The mandatory credit counselling that has to be taken before filing should serve as a helpful measure to see if the bankruptcy is a proper fit or not.

Tags: bankruptcy

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