Filing bankruptcy allows you to eliminate unsecured debts like credit cards, car loans, bank loans, and medical bills. While eliminating this debt will help your household budget, there’s also a lot it doesn’t change. You’ll still be responsible for rent, utilities, insurance, groceries, and all your other living expenses.
Importantly, filing bankruptcy doesn’t change your income. If you made $0/month before filing your case, you’ll still be making $0/month afterward. This means that simply stopping paying your unsecured debt so you can make sure your necessities are taken care of will have the same short-term effect as a bankruptcy filing.
Let's illustrate this with an example:
Debbie worked in hospitality with a $2,500 monthly income, but last week she was laid off. Now she's receiving $1,040 a month in unemployment—barely enough for rent, utilities, and food. She can't make her credit card payments anymore and is wondering if filing Chapter 7 bankruptcy would help her situation.
Here's the thing: whether Debbie stops paying her credit cards on her own or files for bankruptcy (which stops them via the automatic stay), her monthly shortfall stays the same. She still can't cover her living expenses. Bankruptcy won't increase her income—it will just eliminate the credit card payments she already can't afford.
Since her core problem is insufficient income, not unmanageable debt, filing Chapter 7 won't give her the relief or fresh start she needs right now. In this case, it may be better for Debbie to wait to file until her income increases and she's no longer adding to her debt load or relying on credit cards to cover her monthly shortfall.
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