When Is It Time to Consider Filing for Bankruptcy?

Interviewer: First off, why would someone consider bankruptcy?

Vance: There are three main causes of bankruptcy. You've have medical illness, you have loss of job, and you have divorce. I'd say 90% of my clients that come in, they've experienced one of those three things within the past one to four years. Once that happens, it's very difficult to recover from something like that.

Once they experience one of those life changing events and they have to make ends meet on credit card debt, or they have insurmountable medical bills, or they've lost their job and had to live on the credit cards and now the balances are extreme.

Even a divorce, you're living together with a person and all of a sudden the income's cut in half, and you have to maintain your own household, and you still have to maintain the credit card debt that you both accumulated together. Those are the main reasons that people consider filing bankruptcy.

Is There a Minimum Amount of Accrued Debt Needed in Order to File for Bankruptcy?

Interviewer: What would you say is the minimum amount of accrued debt needed in order to file?

The Decision to File for Bankruptcy Is Not Based Solely on What Debt Has Been Accumulated

Vance: That really depends. I have some clients that are on fixed incomes or no income, and then they owe $5,000. I have some clients, they're making $100,000 a year, and they owe $100,000, so it just depends.

Every situation's different. There is no set amount needed to file. Usually if someone comes in and they have a good job and they owe less than $5,000, I recommend they don't file bankruptcy, but it just depends.

It just depends on what you're situation is and what the potential for future income is going to be. Bankruptcy does give people a fresh start. There's no doubt about it. However, sometimes people will come in, and they haven't paid their credit cards, and they may only owe $5,000, but they haven't paid on the credit cards in over a year. In that case, it's easier to recover from a bankruptcy than late payments on credit cards.