What Credit Card Debt to Income Ratio Should You File Bankruptcy?
Most debtors hear the phrase "debt to income ratio" and they aren't sure what it means exactly. In a nutshell, a debtor's debt to income ratio is the percentage of debt they have in ratio to their income. This debt to income ratio is used by credit card companies, mortgage lenders, car financers and others to determine whether you are a safe risk. If you have too much debt in comparison to your income, they may not want to lend to you. Also, your debt to income ratio can help you determine if your financial situation warrants filing bankruptcy. First let's take a look at how you can determine your debt to income ratio for the purposes of determining if you may need to file bankruptcy.
Determine Your Monthly Income
Then list out your monthly debt payments and the total amount owed. To get an accurate picture at your real financial situation, include expenses such as your mortgage, utility payments, food expenses, etc.--anything you pay on a monthly basis. Try to be as accurate as possible, because this will reflect exactly how much money you're paying out each month. For example, if you owe a $5000 credit card and make $100 payments every month, make note of the $100 payment you're making. And for our purposes, include monthly payments you should be making; but have stopped making because of financial problems. So if you have a $2,000 medical bill you haven't repaid, imagine what you would pay if you were repaying the bill--maybe $100 a month. This will help you determine if it is even possible for you to repay your bills without the help of bankruptcy. Once you have all of your monthly expenses and debt payments listed, add them up and divide them by your monthly income.
For example, if you earn $6000 a month and have $5,000 in monthly expenses, you would divide $5,000 by $6,000 which is 0.83. Now move the decimal over two spaces to the right and you have 83%. If this was a real debtor's debt to income ratio, they would need to run, not walk to a Dallas bankruptcy attorney
. Anything over a 30% debt to income ratio is too much and may indicate a need for bankruptcy relief.