Michigan residents file personal bankruptcies when their financial situations become unmanageable and their debts become inescapable. The Bankruptcy Code does not establish a minimum amount of debt that an individual must have to qualify for Chapter 7 or Chapter 13, but people rarely seek debt relief unless their obligations are overwhelming. However, there are situations where filing a bankruptcy could make sense even for people with comparatively little debt.
Delaying the inevitable
When people who are struggling to pay their bills owe relatively small amounts, they are sometimes able to bring their financial situations under control within a few months by reevaluating their budgets to identify and eliminate unnecessary spending. However, this approach may not be viable when an individual has suffered a financial setback and is using their credit cards to pay for necessities like food and shelter. When a financial situation is likely to worsen over time, opting to file a personal bankruptcy petition sooner rather than later could be a wise decision.
Bankruptcy and credit scores
A person with comparatively little debt may put off seeking relief because they are concerned about the impact that filing a bankruptcy would have on their credit rating. This may do more harm than good if an individual’s financial situation will almost certainly get worse and a bankruptcy filing is likely inevitable. Chapter 13 bankruptcies remain on credit reports for seven years, and Chapter 7 bankruptcies are not removed from credit reports until 10 years have passed. The sooner this time period begins, the sooner it ends.
A fresh start
Filing a personal bankruptcy puts an end to creditor harassment and offers the opportunity for a fresh financial start. It is usually not a good idea to file a Chapter 7 or Chapter 13 bankruptcy when debts are relatively small and could be managed by prudent budgeting. However, filing a bankruptcy could make sense even when debts are modest if an individual’s financial situation is likely to get worse rather than better.