Any debtor with serious financial problems should consider bankruptcy. However, bankruptcy isn’t always the right answer. Bankruptcy is the answer only when you have too many debts to pay from your future income or from selling your assets. For example, why declare bankruptcy if you earn $100,000 a year and your debts are only $20,000? Short-term financial sacrifice on your part can pay down your excessive debts, and this is certainly preferable to bankruptcy.
If your unsecured debts are less than 60 percent of your net annual pay, avoid bankruptcy. Commit 20 percent of your net pay to pay past creditors. Most creditors will wait two or more years if you show good faith and make systematic payments. Many more will settle for less. Consider bankruptcy only if you cannot completely eliminate your debts within three years.
Bankruptcy may also be necessary to protect your assets. In bankruptcy, all civil actions against you must immediately stop – whether they are lawsuits, IRS claims, seizures, levies, attachments, repossessions or foreclosures. Every creditor must observe the automatic stay of continued legal action imposed by bankruptcy. Bankruptcy provides you the opportunity to resolve your financial problems with creditors who would otherwise seize and sell your assets.