Bankruptcy Questions: Is a Personal Bankruptcy for You?

Your medical bills may have skyrocketed after being confined in a hospital for a long period. Or you may not have received any severance package from your now-former employer after resigning from your job. Or you simply may have spent beyond your means. Whatever your reason may be for having humongous debts that you can barely manage to pay back to your creditors after you’ve already exhausted all repayment options available at your disposal, filing for personal bankruptcy is the only measure left for you to relieve yourself of your financial burden. You might be asking though if personal bankruptcy is for you, so here are some of what you should check first before filing for it:

  1. Is your monthly income lower than the median household income of the state where you’re currently residing?

The very first thing that you need to know about filing for personal bankruptcy is that it’s never as simple as you might initially make it out to be.

  • Before filing for personal bankruptcy, you should first check if you’ll be required to take the means test where your current monthly income gets measured against the median income in your state. You’ll preferably want the former to be less than the latter, or you to be a member of the United States National Guard or a Reservist so that you don’t have to take it.
  • In case your current monthly income exceeds your state’s median income, you’ll have to deduct your standard expenses for necessities like food, clothes, utilities, and others as well as actual expenses like repayment of home and auto loans, to name but a few.

  1. Are most of your debts dischargeable?

Another misconception surrounding personal bankruptcy is that it can wipe one’s financial slate clean that would allow them to start from scratch.

  • However, only unsecured debts like credit card balances and medical bills, to name but a few, are allowed to get discharged once you file for personal bankruptcy.
  • If you have any non-dischargeable debts to your name, you have to pay your creditors back using traditional repayment options.

  1. Are you open to the possibility of your previously good credit score getting damaged after filing for personal bankruptcy?

The very minute that you’ve borrowed money from any lending institution – whether it be a bank, a credit card company, or some other lender – means that you’ve got a credit score which you should ideally maintain to a good level so that creditors would agree to lend you money. However, if you’ve consistently maintained a good credit score but you’ve suddenly had to file for personal bankruptcy, you should expect it to drastically drop post-filing which can make borrowing money from any lending institution a bit more difficult for you compared to before.

If it’s any consolation to your current financial situation, more than 700,000 Americans have filed for personal bankruptcy in court between 2016 and 2017. Thus, there’s no shame at all if you decide to declare yourself bankrupt, most especially if it’s the only way left for you to get rid of some or even all of your debts. However, you may not have much of an idea if personal bankruptcy is for you, so you might want to check first if the items mentioned above apply to you. But if that still isn’t clear to you, you could always seek the services of a lawyer who can more properly guide you through the entire personal bankruptcy filing process.