Filing bankruptcy allows you to eliminate your debts - credit cards, car loans, bank loans, medical bills etc. While eliminating these payments will inevitably help your household budget, it won’t change the here and now.
You’ll still be responsible for rent, utilities, insurance, groceries and really all other living expenses. Remember, filing bankruptcy does not change your income. If you made $0/mo. before filing your case, you’ll still be making $0/mo. afterwards. 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 me illustrate what I mean with an example:
Debbie, a single woman working in the hospitality industry was doing alright, taking home a net income of $2,500/month. Last week, Debbie was laid off. Debbie was able to apply for and start receiving unemployment income of $240 per week or $1,040 per month. Her monthly budget changed as follows:
Option 1: Debbie holds off on filing bankruptcy for now, but stops all credit card payments. Debbie knows she can’t make her credit card payments anymore - she is barely able to figure out a new budget that allows her to keep up with rent, utilities and food. She is considering filing Chapter 7 bankruptcy to help deal with this shortfall.
Option 2: Debbie decides to file for Chapter 7 bankruptcy and, as a result, stops all credit card payments.
Regardless of which option Debbie chooses, her new monthly budget will look like this:
Her monthly expenses exceed her income by $860/mo. Filing Chapter 7 bankruptcy will not increase her income. It will not help her deal with the $860/mo. shortfall. In fact, it won’t change her current situation at all. Since filing a Chapter 7 will provide Debbie neither immediate relief from financial distress nor a fresh start, it’s probably premature for Debbie to file Chapter 7 bankruptcy now.