Student Loans and Bankruptcy

Is Bankruptcy The Right Choice For You?

17 January 2017

Roy Sanders

If you are buried in bills, you may feel like you are running out of options. Fortunately, there may be help for your situation – bankruptcy. Bankruptcy isn't a suitable choice for everyone, though. The following guide can help you determine whether it is the best solution in your case.

What types of debts do you have?

Not all debts can be discharged by bankruptcy. If the bulk of your debts don't qualify for discharge or a repayment agreement via bankruptcy, then there is no point in filing. Student loans, tax liens, alimony and child support, and fines or legal settlements often can't be discharged. If your debts are primarily consumer debts, such as loans or credit cards, or medical debt, then you may be a good candidate for bankruptcy.

Can you realistically pay back your debts in three to five years?

In a chapter 13 bankruptcy, the court will set a repayment amount that will fit your current budget. You will pay this amount for a three to five year period, as determined by the court. At the end of this period, any remaining debt is discharged and you don't have to pay it back. If your current income is high enough to realistically pay back the full amount of your debts over a three to five year period, there really is no point in filing bankruptcy.

Are you struggling to cover basic living expenses?

Basic living expenses include rent or mortgage payments, power, water, necessary insurance costs, and realistic food and transportation costs. They don't include extras like restaurant meals, a fancy car, or vacations. If you are having trouble meeting your basic living expenses and keeping up with your required debt repayments, then you are a good candidate for bankruptcy.

Do you have assets to protect?

Some assets can be protected via bankruptcy. These include things like your home or retirement investments. If you are in danger of losing certain assets that you need or will need in the foreseeable future, then bankruptcy can discharge your debts while allowing you to keep these necessary assets. Even your car may be protected, depending on how much you owe and whether or not it's considered necessary for your financial well being.

Is legal action being threatened?

Once legal actions are threatened due to your inability to pay your creditors, such as wage garnishments or levies on your bank accounts, then bankruptcy becomes the wiser option. Allowing a garnishment to occur, for example, could actually make your situation worse if it means you will no longer bring home enough income to make your house payment.

For more help in filing for bankruptcy, contact an attorney in your area such as O'Connor Mikita & Davidson LLC.

Share