Often, my clients have difficulty deciding whether or not they should file bankruptcy at all because the amount of debt that they owe is still “manageable." This type of client is typically current on all their bills, but is being responsible and (wisely) realizes that they will not be able to maintain the status quo much longer. This responsible, wise client is afraid of the bankruptcy process and is inclined to stick with the "devil they know." Filing for bankruptcy is, after all, a huge decision with complex and long-lasting implications, many of which are not obvious to the public. There are a tremendous variety of factual circumstances that weigh in on whether a given client should file for bankruptcy, but in this guide, I will focus on the amount of debt that makes filing for bankruptcy worthwhile.

First, consider the cost of the case. Attorney fees, court filing fees, credit counseling expenses, obtaining documents and records, these all go into the cost of filing. Many attorneys will do simple consumer cases on a flat fee. If that fee is $2,000, then it makes no sense to file bankruptcy simply to discharge a $3,000 credit card. It makes much more sense to file if one has $10,000 in credit card debt.

Second, consider what you will lose if you file. If you file Chapter 7, certain items of your property may be seized and sold by the Chapter 7 Trustee. Your attorney will be able to tell you (with a reasonable degree of certainty) whether you have any property that the Trustee will be able to take. It does you no good to discharge $20,000 of medical bills if doing so will cause the Trustee to sell your home out from under you.

Finally, if you file Chapter 7 and get a discharge, you will be barred from filing another bankruptcy case for a term of years (as I write this, the term is 8 years, but it may change in the future). Filing Chapter 7 to discharge $6,000 of debt will create a serious problem if, a year later, you have a major medical procedure that results in $20,000 of medical bills. Those creditors will be able to collect from you and the option of filing for bankruptcy will no longer be available to you for 7 more years.

An attorney's job is not just preparing the bankruptcy paperwork; it is advising the client and protecting their interests. Sometimes that will mean that the bankruptcy case should be delayed, or other options for dealing with the debt must be sought out.