You owe a large amount of money.
Sure, bankruptcy is an option to get rid of the debt but how do you know when to file? Have you been asking yourself certain questions like: Am I qualified? Do I owe enough money? Does it make the most sense for my situation or is there another option I should know about? For individuals, two main types of bankruptcies exist, Chapter 7 and Chapter 13, both of which require credit counseling.
Chapter 7 is straight liquidation and involves selling the debtor's nonexempt property to pay off the debt.
It is more difficult to file, due to the means test.
Chapter 13 is a repayment plan with a debt limit and is best for debtors with a regular income to pay off their debts with.
The answer to the when should I file for bankruptcy question is to file for bankruptcy when you've exhausted all other options.
Because bankruptcy shows up on your credit report and does carry a certain stigma with it, don't just file for bankruptcy when you owe money.
In fact, don't file for bankruptcy if you:

• Are concerned about your credit.
  Bankruptcy can remain on your credit for up to 10 years.
  
• Need good credit for a job.
  Bankruptcy shows up on your credit report if a potential employer does a credit check.
  
• Want no one to find out.
  Bankruptcy is public record.
  
• Are filing to get rid of alimony and support, student loans, drunk driving judgments, or debts from fraud.
  These types of debts are not erased with bankruptcy.
  
• Are young, only have yourself as a dependent, have a small debt, and have money that can be applied to the debt.
  

Do file for bankruptcy if you:

• Owe an insurmountable amount of money that your income is not matched for, have consolidated loans, spoken to credit agencies and still feel as though you don't have any other options.
  
• Feel your only option is to borrow money from retirement plans.
  Early withdrawal from retirement accounts can make you liable for taxes and penalties which may not be dischargeable.
  
• Are in danger of having wages garnished, and don't want wages to be garnished.
  
• Have large medical bills that continue to grow or would take a long time to pay off.
  These are dischargeable in bankruptcy.
  
• Have already tried working extra hours, scaling back your budget, and selling assets to pay off the debt.
  

Most people who file for bankruptcy tend to be older with several debts that add up to a large amount of money, have a small cash reserve, and are filing due to divorce, job loss or medical bills.
If you find yourself meeting some of these characteristics, get in touch with a tax professional who can help you explore whether bankruptcy is the right option for you.