I have been practicing law for 10 years and handling bankruptcy cases for clients for most of that time. When a new client calls and tells me they are thinking about bankruptcy, one of the first things I want and need to analyze is whether filing for bankruptcy is the right solution for that client’s issues. Usually, the answer is yes, but not always. The bottom line is it’s a question of dollars and cents. Sometimes it’s just cheaper, faster, and stress-relieving, to pay $1500 in legal fees to wipe the slate clean than it is to try to pay off ever-increasing credit card bills.

For example, I might get from a potential client who says she has credit card bills that are past due, some medical bills, and I have a car that is about to be repossessed because I can no longer afford the payments.

My first questions are going to revolve around how much total debt this person has. If he/she has minimal debt, then I am probably going to recommend she try to work with her creditors. But “minimal” is relative — in other words, it’s also a question of how much money she makes. If she is unemployed or struggling to get hours at work, then even a few thousand dollars can be a lot of money — money that she might struggle for years to pay off, all while the debts are being increased by interest and late fees. In that scenario, then it will make sense to file for bankruptcy because it’s going to be cheaper to pay the legal fees and court filing fees (probably around $1400-$1500 total) than it will be to pay off $4000-$5000 worth of debt that is going to keep increasing over time.

Moreover, the car is about to be repossessed, which means the creditor is going to take the car back, sell it on the cheap at an auction (they might get 30% of what a normal seller would get for it), and then hit the client with a “deficiency balance” which is the amount she had left on the loan, plus repossession “costs,” minus the small amount the creditor got at the auction. If she can’t pay the deficiency balance, she’s going to get hit with a lawsuit, which the creditor will win by default, and shortly after that, her wages are going to be garnished and she’s not going to be able to pay her rent.

In that case, I’m going to tell her that bankruptcy makes sense. First, we can stop the auto lender from ever suing her, or if they’ve already done so, we can stop the wage garnishments IMMEDIATELY, and we can wipe the slate clean on her credit cards and medical bills. She’s going to get a fresh start for about $1500 and the priceless peace of mind that comes with that.

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