When Should I Consider Filing for Bankruptcy?

Guest post by: Dustin Bower
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"A person is insolvent whenever the aggregate of his property is not sufficient to pay his debts" - First State Bank v. Sibley County Bank, 105 N.W. 485

What is Bankruptcy?

The bankruptcy system was created to allow people with too much debt the opportunity to have a fresh start. When you file for bankruptcy, you choose to operate under either Chapter 7 or Chapter 13 of the Bankruptcy Code.

Chapter 7 is for those that are really struggling, and will forgive almost all of your debts in return for almost all of your property being sold to pay off your creditors, although you do get to keep the property subject to exemptions.

Chapter 13 is for those in a slightly better financial position and allows you to work with the court to repay as much of your debts as you can. Once that debt repayment period is up, the remainder of your debt is forgiven.

How do I know if I should file for Bankruptcy?

The easiest way to determine if you need to file for bankruptcy is to look at your monthly income. If you make less each month than you owe in debt, then you are insolvent by definition. If you are making an effort in good faith to repay your debts, but do not make enough to pay them back, then you should contact a bankruptcy attorney and go through your options.

Other things to consider: Have you been informed that your house is in foreclosure? Have you been threatened with vehicle repossession? Have you received notice of the filing of a lawsuit against you to collect a debt? Are you being harassed on a regular basis by creditors?

Remember that bankruptcy is designed to help you pay off your creditors as much as possible and to allow you a fresh start. You are allowed to keep enough of your assets to assure that you will not become destitute. However, you should not always look to bankruptcy as your first resort.

What else should I know before I file?

Be warned: the purpose of the Bankruptcy Code is to provide a debtor with a fresh start. It is not designed to preserve that debtor's extravagant lifestyle. If you are spending well beyond your means and are not making proper efforts to repay your creditors, then the court may find the debts to be fraudulent. Fraudulent debts are not discharged by the bankruptcy proceedings and you will still be liable for them.

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About the Author: Dustin Bower

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Dustin Bower is the founder and owner of Bower Law Office, PLLC, http://www.bowerlawoffice.com. Dustin has experience in a wide range of legal areas, including bankruptcy, child welfare and advocacy, administrative law, criminal law, unemployment law, corporate law, and business litigation. Dustin's most recent legal experience involved working with several large engineering and construction firms responsible for the 35W bridge redesign and construction. Dustin is also very active in the non-profit community. He currently volunteers through Minneapolis Achieve, a program that puts professionals in contact with at-risk inner city high school students.
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