Filing for bankruptcy may allow you to discharge credit card, medical and other types of debt without losing property such as your Michigan home. However, there are multiple questions that you should ask yourself before doing so such as what type of bankruptcy to file or if doing so is really your best option.
When to file for bankruptcy
Seeking protection from creditors may be a good idea if you don’t think that you can pay off your debts within the next several months. It may also be a good idea if you owe more than $10,000 in dischargeable debt and you meet the conditions for filing. To file a Chapter 7 case, you must be able to pass a means test or prove that your monthly expenses exceed your monthly income. Finally, bankruptcy might be worth pursuing if you don’t have any nonexempt assets.
When to consider other options
Filing for consumer bankruptcy is typically a last resort after you’ve exhausted other options such as obtaining a revised payment plan or a consolidation loan. You may also want to consider increasing your income or selling assets in an effort to pay what you owe in a timely manner. It is worth noting that retirement assets are typically exempt in a bankruptcy proceeding, so it’s generally best to avoid liquidating them to pay creditors.
Although filing for bankruptcy may eliminate some or all of your debts, there are also negative consequences to doing so. For instance, a bankruptcy will stay on your credit report for up to 10 years. Furthermore, seeking protection from creditors may result in increased insurance rates or an inability to obtain housing. In some cases, it may also make it harder to obtain security clearances or work in the financial sector.