“Should I file bankruptcy?” is one of the most frequently asked questions in Q&A forums that I see, usually without much provided in the way of relevant facts.

Are you asking that question now as well?

The answer depends on a number of factors and can really only be determined after a comprehensive consultation with a qualified bankruptcy attorney.

Should You File Bankruptcy in California?

There are many different reasons why my Los Angeles clients might need, or want, to file a Chapter 7, 13, or 11 bankruptcy case.

You may simply want to stop creditor calls or harassment, and prevent wage garnishment or liens being placed against assets.

Or, you may want to eliminate judgment liens against your home.

Or, perhaps you want to get rid of junior mortgages on your home.

Maybe you just want to “reorganize” and get on a repayment plan with your creditors.

The various chapters of bankruptcy offer solutions to different problems, but the main reason people file is to get relief from their debts.

Not all debts are dischargeable in bankruptcy, but most are and eliminating the legal obligation to pay on them is a very important benefit to weigh.

What Factors Determine Whether Bankruptcy Should Be Filed?

The key factors a California bankruptcy attorney will need to analyze in helping you decide whether bankruptcy is right for your situation are listed below.

  • Income-What is your current income, and do you expect it to continue?   Your income may determine which bankruptcy chapters under which you are eligible to seek relief or how much you have to repay through a payment plan.
  • Expenses-What are your necessary living expenses?
  • Assets-What are the values of your assets, both tangible and intangible?
  • Debts–What debts do you have?
  • Goals-What do you want to accomplish?

About Income Time Periods and Expenses

There are multiple income tests for bankruptcy eligibility, including the dreaded “means test” in consumer debt cases which uses income received in the 6 calendar months prior to filing as its basis and using IRS allowed expense standards.

See more on the bankruptcy Means Test

Additionally, regardless of what the means test shows, courts also look at your “actual” current budget to see if there’s a surplus there, in which case you may be required to do some sort of repayment plan.

Asset Values Will Affect Your Decision

The value of assets are a major consideration in bankruptcy cases because you can only protect a certain amount of your assets with allowed exemptions“.    In a Chapter 7 case, the bankruptcy trustee might sell any assets which are not fully exempt.  In Chapter 13 or Chapter 11, you get to keep all your assets, but must pay your creditors, over time, at least as much as they would get in a Chapter 7 case.

So, Should You File Bankruptcy?

Bankruptcy is a very powerful tool and can accomplish some amazing things.
So, whether you should file bankruptcy depends on the costs and benefits TO YOU of doing so.

It really depends on what you are trying to accomplish and whether you qualify for the Chapters of bankruptcy that would allow you to accomplish those goals.

Next, you have to look at the costs, which includes the attorneys fees as well as other intangible costs (such as not being able to file another bankruptcy case for several years).

A common misconception is that bankruptcy hurts your credit for a long time.  However,  this is simply untrue.  In most cases, bankruptcy helps improve your credit score far more quickly than if no bankruptcy is filed.  Most of my California clients are able to get their credit scores back into the 700s within a year after conclusion of their bankruptcy case.  [See more about how bankruptcy affects your credit score.]

One thing is certain:  You cannot properly decide whether bankruptcy is in your best interest without understanding all of the above; knowing which options you qualify for, what can be accomplished with each option, and what the costs (down-sides), if any, are with those options.

Unless you have been practicing bankruptcy law for several years, you are not likely to have the experience to properly analyze all the information above and make an intelligent decision.

If you want to know if you should file bankruptcy, have a consultation with a bankruptcy attorney in your area.


image by lendingmemo