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Know when It Is Time to Consider Bankruptcy

by Aaron Michael Lloyd on Sep. 12, 2017

Bankruptcy & Debt Bankruptcy & Debt  Bankruptcy Bankruptcy & Debt  Credit & Debt 

Summary: Determining when its time to file bankruptcy.

Steps

  1. 1
    Calculate your monthly income. Take your gross pay (i.e. wages) and deduct 
  2. 1
    Calculate your monthly income. Take your gross pay (i.e. wages) and deduct any taxes, medicare, and social security. Also deduct mandatory contributions for retirement plans, health insurance, and any union dues, spousal support and/or child support obligations. Finally, add in any other sources of income such as from rentals, social security, unemployment benefits, and income from operating a business. The end number is your monthly income. Right this down somewhere so you do not forget it.
  3. 2
    Calculate your monthly expenses. This includes, rent, mortgage, real estate taxes, renter's insurance, homeowner's insurance, home repair and maintenance, utilities, food, childcare costs, clothing, laundry, personal care products, dental and medical not already deducted from your wages, car payments, transportation, and other insurance and taxes not already deducted from your wages. This is your total monthly expenses.
  4. 3
    Calculate your total assets. There is a general misunderstanding that if you have assets and you file bankruptcy they will be taken from you. This is not true. You can exempt certain assets from your estate. See tip below. Assets include property real and personal and intangible including any rights in LLCs, copyright, trademarks, and/or patents. Royalties too. Get an idea of the equity in your home and your car. Know how much you owe on each and have an idea of what the fair market value is. Look at Kelley Blue Book and/or talk with a real estate broker if you have real property. For example, if you do not have real property but you have say $20,000 in the bank or in cash, that is fine, you can exempt the entire amount which means the bankruptcy trustee can not touch it or give it to your creditors. Get an estimate of the value of your total assets.
  5. 4
    Calculate your debt. Run your credit report for free at annualcreditreport.com. Then after reviewing your credit report ask yourself how much debt you have and what type of debt it is (i.e. credit cards, medical bills, mortgage, car loan, student loan, etc...). Unsecured debt like credit cards and medical bills can be wiped out in bankruptcy. However, student loans and certain types of taxes of very difficult to wipe out. So, you will still be responsible for those. If you have credit card debt in the double digits and double digit interest rates and you cannot pay off the entire balance every month then you should consider your option of filing bankruptcy.
  6. 5
    Determine whether you filed bankruptcy before. if you filed a Chapter 7 bankruptcy and received a discharge within the last 8 years you will not be eligible for a Chapter 7 discharge. You must wait to file 8 years after the prior discharge. If you never filed bankruptcy before and your monthly expenses exceed your monthly income and you have credit card debt with assets that can be exempted from the estate then you should consider filing bankruptcy.

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