Is Bankruptcy the Right Solution?

While many people often feel overwhelmed by debt and bills, it can be difficult to know when filing bankruptcy is the right solution to financial trouble.  It’s important to understand the types of bankruptcy, how filing will affect your life and the best time to file.

Taking Inventory

First, if you’re unsure of exactly how much you owe or how much money you have to pay off your debt, performing a financial inventory will help to put your situation into perspective.  Make a list of all assets, including: bank accounts, equity in your home if you’re a homeowner, vehicles, investments and savings.  Next, total up all outstanding and monthly debts.  Include debts that you are making payments on as well as any that you may no longer be paying. 

There is no magic number or amount of debt that will indicate when to file for bankruptcy.  It’s a very personal situation for every filer.  If your debts total more than you can afford to repay, it may be time to consider bankruptcy.

Chapter 7 Bankruptcy

The most common form of personal bankruptcy is Chapter 7.  This type of bankruptcy liquidates your assets to settle as many of your debts as possible.  However, it’s important to understand that some assets may be protected, including possibly your home and your vehicles.  Retirement accounts may also be protected.  However, if you withdraw your funds from an IRA or 401K, and place them into a regular savings account or checking account, they may no longer be protected and may be used in a bankruptcy to settle debts.

Chapter 7 bankruptcy offers a quick solution to financial problems for many people, often resulting in discharge within four months.  While the incident will remain on your credit report for 10 years, some people are still able to obtain credit and even purchase a home with recent bankruptcies. 

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy offers a longer term solution that may be a better option for individuals with personal property, a small business, or any other assets that they wish to keep.  With this type of bankruptcy plan, filers are given several years, once approved, to continue to pay all outstanding debts.  During the grace period, creditors must cease all communication.  At the end of the period, any remaining debt is discharged. 

This is a good option for anyone with a predictable annual income.  However, it can be daunting to commit to a three to five year plan and many filers who start with a chapter 13 switch to a chapter 7.


It’s important to remember that not all debts are discharged by bankruptcy.  Secured loans, such as a car loan, mortgage, student loans and child support may not be discharged through bankruptcy.  However, as long as payments continue to be made, filing bankruptcy can prevent a vehicle from getting repossessed and a home from being foreclosed upon.

Credit Counseling and Debtor Education

No matter which type of bankruptcy you choose, you will be ordered to complete two courses prior to discharge.  Before filing, you will be asked to complete a credit counseling course which provides information about alternatives to filing bankruptcy.  After filing, you will be required to complete a two-hour debtor education course.  This course focuses on financial management and recovery after bankruptcy. 

Sage Personal Finance offers the required debtor education course for both individual filers and joint filers.  Learn more about Sage’s highly rated program and get started today.

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s