Can I File for Bankruptcy if I am Not Behind on Bills?
Every now and then we hear from someone with a very high credit score and no collection accounts who nevertheless is under financial distress. This person wonders if they can file for bankruptcy to obtain peace of mind or whether they must wait until their accounts go into collections before filing.
This is an excellent question. The answer is that you do not have to wait to be behind on your bills before you file for bankruptcy. Instead, you can file if you qualify.
Chapter 7 and 13 Requirements
Most consumers file either for Chapter 7 or Chapter 13 protection. Neither bankruptcy requires that you be behind on your bills before filing. Instead, Chapter 7 requires that you pass a means test, which will look at your income in relation to the median income in the area where you live. If your income is below the median, you automatically qualify for Chapter 7. If it is above, then you can qualify if your expenses are high in relation to your income.
To qualify for a Chapter 13, you must have a regular source of income, such as wages from a job or self-employment income. You will also need enough disposable income to pay back some debts in full, such as tax debts or child support. Any left-over income goes to pay back a portion of your unsecured debts (like credit cards).
As you can see, neither Chapter requires that your credit score be too low or that you be behind on bills. It’s possible to qualify even if you have always been current on all your debts.
Considering Whether Bankruptcy is Right for You
Just because you can file for bankruptcy does not necessarily mean that you should. For example, you might have a lot of cash in your savings account but want to get rid of some medical debt. If you file for Chapter 7, then the trustee can probably seize the cash in the account and distribute it to your creditors. In this situation, it might make sense to negotiate a lump sum settlement with your medical provider.
In practice, it rarely makes sense to file for bankruptcy unless you are truly in financial distress. But this does not mean that you need to be behind on bills—just that you are having a hard time making ends meet. You should always meet with an experienced South Florida bankruptcy attorney to discuss whether filing for bankruptcy makes sense.
Voluntarily Stopping Payments
If you decide that bankruptcy is right for you, you might want to stop making payments on your credit cards and other unsecured debts. Since you know you will be wiping these debts out in the bankruptcy, there is usually no reason to continue making payments. Instead, you can use the extra cash freed up for living expenses or to pay for filing the bankruptcy.
With your attorney, you can also create a list of bills that you should continue to pay because you will not be able to discharge them—child support, spousal support, student loans, and secured debts (like your mortgage).
Experienced Bankruptcy Attorneys in South Florida