When filing for bankruptcy makes the most sense

Filing for bankruptcy might make the most sense for your situation because it can put an end to collection calls, lawsuits or wage garnishments. In some cases, it can result in an increase to your credit score. Typically, credit card debts, medical bills and personal loan balances are eligible to be discharged in a California bankruptcy proceeding. Other debt balances might also be reduced or eliminated in a Chapter 7 or 13 case.

When bankruptcy is your best option

Generally speaking, you may consider filing for bankruptcy if more than half of your income goes to creditors. It can also be worth doing so if you don’t think that you’ll be able to pay your current balances in five years or less. It is worth noting that retirement accounts are shielded from creditor claims in a Chapter 7 or 13 proceeding.

Therefore, it may be best to seek protection from creditors in court as opposed to dipping into your 401(k) to pay a credit card or medical debt. If you are still making payments on consumer or other types of unsecured debts, it may be in your best interest to use that money to pay a bankruptcy attorney instead.

How bankruptcy might impact your credit score

According to Equifax, those who filed for Chapter 7 bankruptcy in 2010 had an average credit score of 538.2. Those individuals saw their scores increase to 620.3 within six months of obtaining a discharge in their cases. The average credit score among those who obtained a discharge in their Chapter 13 cases increased to 610.8 from 535.2 prior to filing.

Filing for bankruptcy may make it possible to reduce or eliminate debt balances in a matter of months. In a Chapter 13 case, it may be possible to retain property such as a home or car during the repayment period. An attorney may be able to guide you through the process of filing for bankruptcy as well as talk more about the potential benefits of doing so.