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Blogging for Change Blogging For Change
by Jesse Campbell on November 18, 2013

Woman considers filing bankruptcy

First thing’s first: there’s no blog post, magazine article, or checklist that can tell you whether or not bankruptcy is right for you. There are too many variables.

And bankruptcy is hard. It’s a hard process to go through and an even harder one to recover from. It’s enormous decision that will impact your life for nearly a decade. It’s a very complex, personal decision.

All that said, there are definitely signs that tell you when to start seriously considering bankruptcy as a possible solution.

Check all that apply

What are the burdens you’re feeling right now?

  • Loss of income
  • Overwhelming unsecured debt
  • Significant medical bills
  • Divorce
  • Foreclosure 
  • Pending lawsuits
  • Garnished wages
  • Delinquent taxes

How many of these apply to you? They’re all the common factors that lead individuals to file for bankruptcy.

Any one of those things can potentially put you in a position where bankruptcy is the answer. It’s really about degrees. Consider what’s holding you back and ask yourself, “What can I do to fix this?”

Most of the difficulties that push us towards bankruptcy can be addressed. Some can’t. So take the time to sort out what’s put you in such a dire position and do your best to craft reasonable solutions to those problems. Speak to friends, speak to financial counselors. If there are no feasible solutions, bankruptcy might be the next step.

Do your liabilities outweigh your assets?

If you haven’t done it recently, take a moment to add up all of your liquid assets. That means the current value of your home, your car, your personal savings, retirement funds and investments (stocks, etc.). You don’t have to be exact, but put together a rough estimate.

Now add up your liabilities – that’s all your bills (credit debt, outstanding loans, medical bills, etc.).

Which one is bigger? If your liabilities outweigh your assets, that doesn’t necessarily mean you should file for bankruptcy. It just means you can put another checkmark in the “Maybe I need to talk to a lawyer” column. And the bigger the deficit, the bigger that checkmark should be.

Do I pass the means test?

A means test is a somewhat complicated formula that determines whether or not an individual is eligible to file for Chapter 7 bankruptcy. Since Chapter 7 includes total liquidation of all eligible debts (where everything gets wiped away), the test is designed to prevent those who have the “means” with which to pay back all or some of the debt from receiving this level of relief. Those who don’t pass the means test for Chapter 7 bankruptcy are still eligible for Chapter 13 – which functions more as a repayment plan.

As noted, the means test for bankruptcy is complicated and your attorney will walk you through it if you decide to file, but there are a few general guidelines that can tell you right off the bat whether or not you qualify for Chapter 7 bankruptcy.

Check your income maintains an up-to-date list of median household incomes by state. Find your state and your family size on this chart. Is your monthly household income less than the median for a family your size in your state?

If yes, then you qualify for Chapter 7 bankruptcy – no other equations necessary.

If no, you may still qualify, it’s just a bit more complicated.

What’s your disposable income?

To understand disposable income, you have to understand “allowable expenses.”

The IRS maintains a list of National Standards for what they consider to be the five necessary expense categories: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. Additionally, the IRS maintains national and local standards for transportation, housing, utilities and more.

The standards represent the accepted amount each category should cost each month, and varies depending on the size of the household. These are your allowable expenses.

In order to find your disposable income (for bankruptcy filing purposes), you take your monthly household income and subtract the allowable expense for every category (based on the size of your household). What’s left over is your disposable income.

Now take your monthly disposable income and multiply it by 60. That gives you your projected disposable income over five years. If it’s less than $6,000 you’ll very likely qualify for Chapter 7 bankruptcy. If it’s more than $10,000 you probably won’t qualify.

If it’s between $6,000 and $10,000 it’s even more complicated (I warned you).

Basically, you need to compare your projected disposable income over five years to your current unsecured, non-priority debts (credit card debts, medical bills, unsecured personal loans, etc.). If your projected disposable income is more than 25 percent of your unsecured debt, then you would likely not qualify for Chapter 7 bankruptcy (the thought being that you’ll have enough money available to make some kind of repayment on your debt.)

If your projected disposable income is less than 25 percent of your unsecured debt, then you will probably qualify for Chapter 7.

Check your feelings

Once you’ve looked at your finances, the next step is to look inside.

  • Have you tried alternatives and they just haven’t worked?
  • Do you feel “done with it”?
  • Do you understand how you got to this point and what you need to do differently to avoid repeating your mistakes?
  • Are you prepared to do the hard work of filing bankruptcy and the even harder work of starting over?

Chances are good that once you’ve gone through all the numbers and calculations you’ll know on some level what you need to do.

Don’t go alone

The idea of bankruptcy is, in a way, the idea of letting go. It’s an admission – not of failure, but of a need for help.

If you decide to file for bankruptcy, don’t be embarrassed and don’t go alone. Talk about it with the people who matter most to you. Let them know why you’re doing what you’re doing. Let them support you.

If you have more questions about bankruptcy or need help finding a qualified attorney in your area, visit for additional information and resources.

Posted in:  Bankruptcy, Family


Bankruptcy Sydney says:
February 10, 2014

Good insights about filing for bankruptcy.

Filing Bankruptcy says:
October 15, 2014

A helpful article this could really help and serve as a guide for those who is in the financial dilemma.

John Powers says:
December 09, 2014

Great to see a like minded site post useful information about bankruptcy. For anyone who is reading, we always say you should speak to a professional before going bankrupt to ensure you fully know what you are letting yourself in for.

Lindsay Lee says:
July 03, 2016

This is very informative! There are several factors when filing for bankruptcy and the most important thing is that having that moral support from your families. Filing for bankruptcy is a hard process to take. Getting the most suitable advice is actually one of the hurdles with any kind of financial problem, and finding the correct person is even harder.

Lucy Metcalfe says:
May 24, 2016

Perfect blog! For most people the thought of bankruptcy is devastating enough having it become a reality is very painful and comes accompanied with an overwhelming sense of failure. If you are feeling trapped and like you have no options, because you are crippled by debts you don’t have to be. I struggled with this when I was just starting out, but I got some help from my SEO company.

Marc Aaron Goldbach says:
October 01, 2016

You are right Jesse, no one can tell you if filing personal bankruptcy unless you talk with the professional. I know the feeling. For whole month, I was depressed, devastated and wrecked when it happened to me 4 years ago. I research a lot, reading forum and what other are saying. I educate myself and asked every details on every consequences. It helps me a lot to talk with the professional. When all my questions cleared up, it's easy for me to take decision. Everything turns good.

Personal Bankruptcy says:
October 28, 2014

Its an interesting article. This could really help a lot.

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