Filing for bankruptcy isn't always the best response to debt collection

What the TV ads don't tell you about US bankruptcy laws

Photo credit: Nicola Barts/Pexels

While most bankruptcy lawyers would tell you to file for Chapter 7 or Chapter 13 bankruptcy if you’re in credit card debt, this has concerning consequences. You may have challenges finding a job (especially in the financial services industry or in any position that requires the handling of money), could be forced to sell some or all of your property, and face years of challenges for credit approval.

If your income is average or above, you are not allowed to get a Chapter 7 discharge; you can only file a Chapter 13 bankruptcy.

Bankruptcy is not always the easy, quick solution that advertising makes it seem to be.

Before you can even file for bankruptcy, you must complete a debt counseling course. Then, before your bankruptcy case is closed, you must take another counseling course. Both will cost you time and money.

Even more significant, however, is the “means test,” which measures your income compared to the rest of the population in your state. If you are below-average income, then you can probably get a Chapter 7 discharge. This means you’ll “start over” with your debts having been discharged (wiped out) only after you’ve given up all your assets.

If your income is average or above, however, you are not allowed to get a Chapter 7 discharge; you can only file a Chapter 13 bankruptcy.