4. Most of your debt is tax debt
Filing for bankruptcy will help you deal with your current debts either by making them more manageable or even clearing them out altogether. Some debts, however, cannot be eliminated even after bankruptcy. Certain kinds of taxes fall under this category. Income tax, for example, cannot be cleared up unless certain criteria are met; it must be a minimum of 3 years old and cannot have been assessed to you in the last 240 days.
Filing for bankruptcy within this period won’t produce good results since you won’t be cleared of those debts. If most of your debt is income tax that you’ve had for 3 years, you should consult a lawyer specializing in bankruptcy and see if you can eliminate your debt.
3. You could lose assets precious to you
Filing for bankruptcy, specifically chapter 7 bankruptcy may cost you some of your assets. Chapter 7 bankruptcy means you go through a liquidating bankruptcy and any assets you own that aren’t protected under exemption laws can be seized with the profits being sold to pay your creditors.
The exemption laws vary per state and you should always find a bankruptcy lawyer and find out what is protected. Commonly protected assets under exemption laws usually include homes, wedding rings, cars, retirement accounts, and certain household items.
2. Most of your debt comes from student loans
Student loan debt is probably the most difficult kind of debt to discharge through bankruptcy. A recent amendment in 2005 to the bankruptcy code includes a provision that states all debt incurred for educational purposes cannot be discharged. Student loan debts can only be discharged by extreme hardship.
There are several alternatives to paying off student loans such as organizations that help those having trouble with their finances. Bankruptcy is not for you if your debts are mostly comprised of student loans.
1. Your debt is affordable
It’s rare to meet somebody who is filing for bankruptcy that can actually afford to cover their current debt. Some people are simply unaware of their alternatives or options and a few others aren’t properly weighing the risks of filing for bankruptcy and are looking for a way to get rid of their debt.
Everything though is relative. One way to find out if you should consider filing for bankruptcy is to do a little math: take your monthly income, subtract all of your monthly expenses (credit card payments included) and see just how much money is left over. Depending on the amount, a better long term solution would be to seek debt management assistance.
But as aforementioned, everything is relative. Even if the amount seems too small for bankruptcy, if income is limited and there is no possibility to improve their finances, bankruptcy may have to be considered.