Can I File Bankruptcy If I'm Not Late on My Payments?

By Stephanie Kurose, J.D.

Can I File Bankruptcy If I'm Not Late on My Payments?

By Stephanie Kurose, J.D.

Federal bankruptcy laws allow an individual, couple, or business to file bankruptcy at any timeā€”even if they are not behind on their payments. Though, you must meet some basic prerequisites. If you are in a position where you are still able to make your payments on time, you should seriously consider whether filing for bankruptcy makes sense in the first place.

Man reading paperwork at his desk

Bankruptcy 101

People often file for bankruptcy as a last resort after years of drowning in debt. When a person or business files for bankruptcy, they are essentially discharging their debts and getting a financial fresh start. This may sound like good news, but the downside is that your credit score takes a major hit and may take years to rebuild.

There are two types of bankruptcy cases: Chapter 7 and Chapter 13. Depending on your financial situation, you may qualify for one but not the other. Chapter 7 bankruptcy wipes out most of your debt and does not require you to pay any of it back. However, a bankruptcy trustee will sell some of your property to pay back your creditors. To file for Chapter 7 bankruptcy, you must meet certain income requirements. If you make too much money or are not behind on any of your payments, you may not qualify for Chapter 7 bankruptcy. The court may view you as having enough money to pay back at least some of your debt.

If this is the case, you may qualify for Chapter 13 bankruptcy. Chapter 13 bankruptcy is designed for debtors who have enough income that they can pay back at least a portion of their debts. This is typically done through a repayment plan spanning a period of three to five years. If you have kept up with the payments, your outstanding debts at the end of the repayment period are discharged.

Considerations to take into account

Filing for bankruptcy should not be taken lightly. It is a difficult process that should be used only as a last resort. People turn to bankruptcy when they are going through major life events that significantly reduce their income, increase their expenses, or both. Such events could include getting a divorce, losing a job, or having to pay back expensive medical bills.

A bankruptcy discharge stays on your credit history for about 10 years. However, the older the bankruptcy is, the less of an impact it has on your credit score.

Another thing to keep in mind is that while a bankruptcy dissolves you of your obligation to repay your creditors, it may burden others who will then be on the hook for your debts. For example, a joint account holder or co-signer would then be responsible for your debts. Thus, before you file for bankruptcy you may want to have anything you owe transferred into your name only.

Filing for bankruptcy is not an easy decision. There are many considerations to take into account that can have a lasting impact on your life. Enlisting the help of a professional can be useful if you have any questions or would like further guidance.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.