When Not to File for Bankruptcy

April 25, 2013 - PRLog -- There's no doubt that for some people who are facing insurmountable debt, bankruptcy is often the best option. However, for others, bankruptcy may not actually be their best course of action. Here are five instances where bankruptcy is probably not the wisest decision:

1. Your Debt is Primarily from Student Loans

In 2005, the Bankruptcy Code was amended with a provision that made debt obtained for educational purposes non-dischargeable. Indeed, student loan debt is one of the most difficult types of debt to get rid of. While some filers will be able to overcome this through demonstrating hardship, it will still be challenging. If you are at all able to work, the courts are not likely to discharge student loan debt. If your primary type of debt is from student loans, your best bet is to seek out an organization that specializes in helping people going through financial difficulties to handle student loan debt.

2. Your Debt is Mostly Back Taxes

Tax debt is another type that is generally not dischargeable through bankruptcy, and most kinds of taxes fall into this category. Payroll taxes owed by a business owner can never be eliminated. Income tax must meet certain criteria in order to be eliminated: it must be at least three years old and not assessed to you within the last 240 days. If a large portion of your debt is relatively recent and from taxes, bankruptcy is probably not a wise option. Those debts most likely won't be discharged. However, if your debt is income tax and is three years old or older, consult a bankruptcy attorney to find out if it's possible that the debt could be eliminated via bankruptcy.

3. You Are or Will Soon Be Receiving an Inheritance

If you've received an inheritance or are going to be receiving one soon, bankruptcy might not be the best option for you. This applies in cases where you will be a beneficiary under a will or trust of someone who has died. It will likely take some time for the inheritance to be processed, and you might not receive the inheritance money for awhile. However, if you file bankruptcy and then receive an inheritance, the money is considered an asset that can be taken by the trustee and distributed to your creditors. Also, if you become eligible to receive an inheritance within 6 months (180 days) after you file bankruptcy, these funds can also be used to pay your creditors. If any of these scenarios describe you, consult with a bankruptcy attorney before filing.

4. You Have Assets That Will Likely Be Lost

Another reason to reconsider filing is if you think you could possibly lose major assets. A Chapter 7 bankruptcy will liquidate any assets not protected under state or federal exemption laws. This means these assets can be seized by the trustee, sold, and the money distributed to your creditors. Unprotected assets will likely be lost, and this can be a major reason not to file. Check specific exemption laws for your state to determine how much of your property will be protected. Meet with a bankruptcy attorney if you are unsure.

5. You Have Business Debts that Aren't Personally Guaranteed

The option of bankruptcy gives many entrepreneurs and small business owners the courage to take a risk in starting their businesses. It can be encouraging to know that if a business fails, there is the option of bankruptcy as a safety net. A number of small business owners do end up filing for bankruptcy. However, if you are a business owner and most of your debt is from the business and you also don't have personal guarantees on the debt, then bankruptcy might not be necessary in your case. If you've set up your business as a corporation or an LLC (limited liability company), then you'll have protections against business creditors.

If you do not have a personal guarantee on the debt, creditors cannot come after you personally. However, in the majority of small businesses, business owners do indeed personally guarantee most all the business debt. If this applies to you, then personal bankruptcy could indeed help to eliminate all of your personal liability connected with your business debts.

While bankruptcy can be a great relief for many people, it is not for every person and situation. There is a downside to filing bankruptcy, and your credit will be dramatically affected. If any the above five items apply to you and you're in doubt about your best course of action, consult a bankruptcy attorney to confirm your best option.

Gina Jennings is a digital marketer who works with Bankruptcy and Workmen’s Compensation attorney Edward Grimes Law. For more information, visit: http://www.edwardgrimeslaw.com/oklahoma-bankruptcy-attorneys.