Woman with paper on floor and calendar in hand

When Should I File for Bankruptcy?

Despite common belief, bankruptcy is not the end of the world. Many have benefited from a fresh financial start by filing for bankruptcy. It is essential to understand what bankruptcy entails and when it is the best time to file for bankruptcy. Our Colorado bankruptcy team outlines the most common financial situations that would benefit from filing bankruptcy and which chapters to consider.

First, Evaluate Your Situation

When should I file for bankruptcy? This is a question that comes to the minds of many going through financial distress. Before taking the big step of filing for bankruptcy, consider the following options;

  • Credit counseling
  • Negotiate your debts or request a payment plan with your creditor
  • Reconfiguring your budget

If, however, these options don't seem feasible, filing for bankruptcy may give you the fresh start you need.

Understanding Bankruptcy

Bankruptcy is the legal process by which one can discharge various forms of debt if found cannot repay those debts. The two ways to declare bankruptcy are:

  • You file for bankruptcy yourself, or
  • Your creditors request the court to declare you bankrupt

The most common chapters filed are chapters 7 and 13.

Chapter 7 Bankruptcy

Chapter 7 is often known as a "liquidation bankruptcy. This chapter of bankruptcy is the most common and the quickest, taking around four to six months to complete. During chapter 7 bankruptcy, a judge orders all non-exempt assets to be liquidated. The proceeds obtained through the liquidation are used to repay the creditors. Any debts remaining after the liquidation of valuables are discharged.

Some signs that you may be a good fit for filing chapter 7 bankruptcy include:

  • Having more than $10,000 of dischargeable debt
  • A low credit score (below 600)
  • You do not own expensive property
  • You have a hard time keeping up with your monthly payments and bills
  • You worry your wages will be garnished
  • You earn less than the median income in your state
  • It seems impossible to pay back your debts over the next five years

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as "wage earner's" bankruptcy, typically takes three to five years to complete. Chapter 13 allows you to pay your debts through a payment plan assigned by the court. Any debts remaining after the payment plan ends will be discharged.

You should consider filing for Chapter 13 bankruptcy if:

  • You are employed and have enough income to cover your monthly payments
  • You are an individual, not a business (however, there's an exception for sole proprietors).
  • You exceed the means test for Chapter 7 bankruptcy
  • You are a homeowner behind on a mortgage payment who can catch up with payments owed through a payment plan

It is worth noting that not all debts are considered dischargeable after bankruptcy. Some debts such as student loans, taxes, child support, and alimony will not be discharged by bankruptcy. It is highly recommended to consult with a bankruptcy attorney to review your debts and provide you with the specialized advice needed for your situation. Considering how complex filing for bankruptcy can be, whether chapter 7 or 13, getting legal guidance can save you time and frustration.

Contact Our Colorado Bankruptcy Team Today

Though it is a new beginning for your finances, bankruptcy is a significant financial measure that should not be pursued alone. At Wagner Law Office, P.C., we are pride ourselves on providing our clients with the tailored legal advice they need to reach their goals.

If you need help filing for bankruptcy, we can help. Don't hesitate to contact us today through our website or give us a call at (303) 536-5124 to schedule a consultation.