I can’t afford my bills, should I file bankruptcy?

Maybe. The first question I address is the client’s income in comparison to what they have to pay for. For example, rent, a necessary car, and electricity are expenses that will still be there after a bankruptcy. Sometimes the income is so low, that the consumer can’t afford those necessities. This is a problem that is becoming more prevalent in this country as inflation slaps us harder than Will Smith before he gets an Oscar.

Bankruptcy will NOT fix an income issue. If you don’t make enough money before bankruptcy, you still won’t make enough after you file and get a discharge. You also may not be able to get a discharge if you are proceeding under a Chapter 13. If the trustee doesn’t think you can afford to make plan payments, they will object to your plan, and it will be extremely difficult to convince the judge that you can do it. These scenarios might be overcome by expected windfalls or family member that promises to help with the payments, but this is far from ideal. However, if you COULD pay your rent, car note, utilities, BUT FOR credit card bills, medical bills, etc., a bankruptcy might be the solution.  

Let’s look at a couple of (Very Simple) scenarios:

Example 1: Ruth, 84, is on retired and lives solely on Social Security. She makes approximately $12,000 per year. Her rent is $950.00 per month, and she rides a 1984 Harley Davidson. Her monthly utilities are approximately $200 per month. Her food expenses are about….it doesn’t really matter as she is already spending more than she makes. Ruth also has about $75,000.00 in credit card debt from trying to keep the Harley running. Ruth read on Reddit that bankruptcy might fix her problems.

Analysis: Will bankruptcy help Ruth. Probably not, at least long-term without other changes taking place. This is an oversimplified analysis, but Ruth can’t afford her rent and her utilities even if she stops paying her credit card bills. If Ruth decided to try and earn some money with Door Dash, she might be able to get to a place where she can afford the bills she will have after bankruptcy. That doesn’t mean Ruth doesn’t have other options. After reviewing her assets and her potential exposure to debt collection, an attorney can likely help her preserve what she has and keep the debt collectors at bay. This is actually a pretty typical scenario in our office.

Example 2: Amber, 36, just lost a multimillion-dollar lawsuit. While she used to make quite a bit of money, that likely won’t be the case going forward. However, she does have residual income from her previous works and might be able to survive on that if she didn’t have this huge judgment over her head. All her assets are in NFTs and who knows what the heck those are let alone what they are worth.  Star has already reported that she is filing for bankruptcy, so she figures she has nothing to lose.

Analysis: Bankruptcy might help Amber if the judgment is a debt she can discharge. This is not always the case. A full analysis would have to be done on her assets as well. Much like a bankruptcy won’t fix an income problem, it also won’t fix a reputation problem.

Final thoughts: Even if you have income issues, it can still pay to talk to an attorney about your situation. We have many tools to protect you from creditors and debt collectors. They can also help you plan ahead with purposeful decisions instead of trying to file an emergency petition when a tow truck is hooking up to your car so they can repo it.

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