Bankruptcy attorneys earn a living by convincing people in debt to file bankruptcy. But, whisper whisper, I'm here to tell you that sometimes you don't need our services. Don't tell my colleagues I said so, as I will be immediately banned from the totally fictional Bankruptcy Attorney Guild for life. Or, receive some mildly annoying e-mails...either way, you get the idea.
As a general rule, there are three times that you absolutely do not need to file bankruptcy.
1. You have low debt and high income
If you are making $70,000 a year and you have $5,000 in credit card debt, there isn't much reason to file a bankruptcy. You can pay that debt off with only the mildest of efforts. What is the cut-off on "minimum debt to file"? It's hard to say, as that same $5,000, with a lawsuit involved, is a lot of money for someone making $800 per month on Social Security. But, I would that owing less than $10,000 in and the ability to make the minimum payment each month excludes you from my services. If you are struggling to make the minimum monthly payment, and your balance isn't moving, you should consult an attorney and/or financial planner. If you make your payments and see your balance dropping each month, you can probably avoid bankruptcy.
2. You have mostly non-dischargeable debts
Debts not discharged in bankruptcy include most student loans, taxes, penalties, fines, and restitution, family support, and bills accrued after filing your case. These debts can sometimes be wiped out, but be careful with any attorney claiming they can take care of them. An unscrupulous attorney can inflate your sense of debt by saying, "you need to file, you have $100,000 in debt!" If, $90,000 of this is owed on student loans and to the IRS, yes, you may have $100, 000 in debt total, but bankruptcy will not help. Filing bankruptcy will not remove the bulk of these debts.
3. You are considering purchasing a home
A final scenario where you probably want to avoid the charms of bankruptcy attorneys (and I can attest that as many as 1 in 10 are, in fact, charming) is when you imminently want to get a mortgage. A recent bankruptcy filing can make mortgage hunting difficult or impossible for several years. If your debts are otherwise manageable, avoid filing before looking for a mortgage. If your debts are significant, you might not have any other choice, but it is something to keep in mind.
Most attorneys in the Bankruptcy Attorney Guild (note: does not exist) are honest and helpful. However, it is always a good idea to consider when their help is not for you.