My Income Is Not Enough To Cover My Expenses–Will Bankruptcy Help?

22 Feb My Income Is Not Enough To Cover My Expenses–Will Bankruptcy Help?

If your income is not enough to cover your expenses, will a bankruptcy filing help you? Depending on what expenses you are talking about, probably not. Unfortunately, I’ve had manydiscussions with people seeking information about bankruptcy only for them to leave disappointed when I tell them that a bankruptcy filing will not help. But before we get to that point, let’s figure out what “expenses” we are talking about and what you propose to do with them.

First, if we are talking about money paid to ordinary living expenses such as the light bill, groceries, the house payment or rent and you are not paying anything toward your debts, and your income is not sufficient to cover your expenses, then a bankruptcy filing is probably not going to be very helpful.This is because thecreditors that you are discharging in bankruptcy, that is, eliminating or getting rid of, you were not paying anyway.Since you were not paying the creditors before you filed bankruptcy, how is discharging them in bankruptcy helping with your cash flow? (A caveat–mystate does not allow wage garnishmenton behalf of judgment creditors so we do not worry about wages being garnished and further restricting cash flow).

However, if we are talking about money that you pay every month (or thereabouts) that goes toward paying down debts such as credit card debts, medical bills, loans from various fnancial institutions that do not have any collateral associated with them, then a bankruptcy filing may be helpful. By discharging those debts, the money that you ordinarily would have paid to those creditors is now freeto be applied to other needs. A simple example will suffice–if you are obligated to pay $600 a month towards unsecured creditors but, after your living expenses such as the house payment, car payment, insurance, groceries, etc., you only have $300 available, you will quickly run into default with the credit cards. But, if those credit cards are discharged you may have $300.00 dollars that you previously used to to pay creditors for other needs–kid’s braces, needed car maintenance, etc.

If your income is not enough to cover some of your basic expenses such as the house payment and/or car payment, will bankruptcy help? If your goal is to retain the house and car, probably not. For debts such as these, which we call secured debts, you must have enough income to be able to manage these payments if you wish to keep those items. Sometimes it requires tough choices to be made. With regards to secured debts, other than some exceptions in consumer cases, typically, we have limited leeway in how we can deal with them. What this means is, if you wish to keep your home, you must have sufficient income to keep making your monthly house payment. If you do not have sufficient income, a bankruptcy filing is not going to help you.

Ultimately, bankruptcy is a useful tool but it is a tool for some situations–not all. In considering bankruptcy, it is helpful to talk with an experienced practitioner. One thing that a seasonsed bankruptcy professional can help with is in clarifying the choices available.

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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.

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