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To File Bankruptcy or Not: A Function of Three Criteria

One should consider carefully the following three criteria:

  1. The size of the dischargeable debt. If the debtor only owes $10,000, the decision to file bankruptcy is more difficult than if the debtor owes $100,000. The higher the amount of the debt, the more likely bankruptcy is advisable.
  2. Annual income. If the debtor earns $100,000 per year or greater, the decision to file is more difficult than if the debtor earns only $20,000 per year or is unemployed. The lower the debtor's earnings, the lower the likelihood that the debtor will be able to earn his or her way out of his or her financial difficulties.
  3. Credit status. If the debtor's credit score is strong, the decision to file is more difficult than if the debtor's credit report has already suffered numerous derogatory references. Pristine credit is a valuable resource, and trying to preserve it is a worthy objective. Most people contemplating bankruptcy have already suffered significant credit damage.

No one of the above factors controls the decision to file or not file bankruptcy. All three factors are relevant and must be balanced when making the decision.