Does It Make Sense to File Bankruptcy?

My office receives a lot of calls during the week from potential clients inquiring about a bankruptcy filing. Throughout the conversation, one important question remains in my mind. Does it make sense for this person to file for chapter 7 bankruptcy? This is a very important consideration. Many attorneys fail to keep this in mind. Whether this is attributed to oversight or a fear of losing the legal fees is another topic. The answer to this question is not always clear at first.

The first consideration is the amount of debt a person has. There are countless people that call my office and say "I have one credit card bill for $3000 and I can't afford to pay it. Can you help me file for bankruptcy. I want to get rid of this bill." My answer is always, no. It makes no practical sense to file a chapter 7 bankruptcy for one bill that is $3000. I view this as an abuse of the bankruptcy law. The law is meant to help individuals who have incurred their debt with the mentality that they will repay the debt and have tried to repay it. Although the law does not specify an amount that is necessary to file a chapter 7 bankruptcy, it is senseless to file if your debt is less than $5000. Consider that you will be responsible for the payment of attorney fees, filing fees, and credit counseling fees when filing a chapter 7 bankruptcy.

The second consideration is the type and amount of assets a person has. When filing a chapter 7 bankruptcy, we want to be sure that we protect your assets. Usually, my clients do not have to forfeit any of their assets. We take all measures to protect them. However, you cannot be driving a fully-paid 2009 Mercedes. This will not be exempt under the New Jersey exemption set or the federal exemption set. We have to keep the exemption amounts in mind. It will come as a shock to you if you file for a chapter 7 bankruptcy and you are forced to forfeit your assets. If you have a house that does not meet the exemption amount, I will advise you to file a chapter 13 bankruptcy. Remember, New Jersey does not have a homestead exemption.

The final consideration is the type of debt. You can discharge unsecured non-priority debts in a chapter 7 bankruptcy. These include, but are not limited to, credit cards bills, medical bills, phone bills, utility bills, personal loans, shortfalls on repossessions, and bank overdrafts. You cannot discharge student loans in a chapter 7 bankruptcy (except for a few narrow exceptions). I will evaluate your "debt portfolio" and decide whether it makes sense for you to file a chapter 7 bankruptcy.

I would love to help every potential client that calls my office. However, the above considerations sometimes forces me to turn some away, for their own good. I do, however, provide them with advice on how to repay their debt and get back on their feet.