Bankruptcy

Most of us want to pay back what we owe, but sometimes that is not possible. Filing bankruptcy does not mean that you are not an honest, hard working person.  Life happens.  Our bankruptcy system was created to give people a fresh start, a second chance.  The Founding Fathers inserted a bankruptcy provision into the Constitution to provide an alternative to a lifetime of debt.    Carefully consider your decision, but do not avoid bankruptcy protection if you really need it.   Talking to a lawyer for legal advice is always recommended.

The determination whether you need to file  is a personal one.  You start with determining your assets and debts. You look at how long it will take you to pay off your debt and how much will it cost you in total.   You look at your options, including the protections and consequences of bankruptcy. The decision is ultimately yours and you want to make a fully informed decision. Again, talking to an attorney is the recommended approach to learn about bankruptcy.  Talking to an attorney does not obligate you to file.

Filing for bankruptcy can wipe away some (but not always all) of your debts and give you a financial fresh start.  It will also be a process to treat your creditors as fairly as possible.

When you file bankruptcy, the courts take legal control over your assets.

You can get bankruptcy relief no more than once every 8 years so choose wisely.

Your credit will take a hit.  (However, it already may be so bad, that filing bankruptcy will eventually lead to improved credit because you’ll be able to rebuild your finances with some of your debts wiped out.

Your bankruptcy will stay on your credit report for 10 year.  It will be public record.  You can rebuild your credit faster than 10 years.   Beware that there are companies that scour credit reports and target people who have filed bankruptcy for credit cards, auto loans, and credit repair.  Watch out.  The loans will most likely come with high interest rates and fees and the credit repair may not be able to accomplish what is promised.

It is important to know which debts are erased (dischargeable) in bankruptcy: most consumer debts such as credit cards, medical bills, payday loans, back-payments on rent, utilities, cell phone, cable television, et cetera will be dischargeable.

It is equally as important to know which debts will not get erased (non-dischargeable) or have a very high standard to get erased: taxes, child support, alimony, student loans, mortgages, car payments.

One of the biggest advantages of a chapter 7 bankruptcy is it erases your dischargeable debts quickly so you can get your fresh start within a few weeks.

A drawback of a chapter 7 for homeowners is it does not give you time to catch up on your mortgage (which is an advantage of a Chapter 13, discussed below.

Again, speaking to an experienced bankruptcy attorney is the best method to receive accurate information on dischargeable debts, exemptions, protections and consequences of bankruptcy.

The second major type of bankruptcy is a Chapter 13.  In a Chapter 13 bankruptcy, you get extra time, three to five years,  to pay down your debts, rather than the erasing them quickly in a Chapter 7.  A Chapter 13 bankruptcy is often called a “homeowner bankruptcy” because it gives you time to catch up on your mortgage.

Non-dischargeable debts (: taxes, child support, alimony, student loans, mortgages, car payments) do not get erased.

The advantage is the extra time to pay back your debt and catch up with payments, and the drawback is whether you are able to make it all the way through your three to five year repayment plan.

Your income and a complicated “means test” will determine what chapter you file.  An attorney will provide specific information on this route.

PROJECT BEFORE YOU FILE

In addition to your debt and budget information, you will want to project into the future to help you with your decision.

• Will you have any upcoming expense?
• What about upcoming income such as a new job, inheritance, legal settlement, etc…
• Most people will want to wait until they are near “rock bottom” before they file.  You would not want to file bankruptcy and then incur a major expense that cannot be included in your bankruptcy.    An attorney can further discuss these considerations.
• Job prospects
• Anticipating major lifestyle change?  (retirement, divorce, inheritance, children going to college)
• Own any investments, real estate or other assets (see list) that you are planning to sell or want to sell in the future?
• Job prospects
• Anticipating major lifestyle change?  (retirement, divorce, inheritance, children going to college)
• Own any investments, real estate or other assets (see list) that you are planning to sell or want to sell in the future?

HOW TO CHOOSE A LAWYER

Hiring an attorney is highly recommended.  Filing bankruptcy is a highly technical process and you will be protected the most by hiring a competent attorney.

Asking around and comparing qualifications, experience, and fees is always a good start.

Some questions:

1. Do you give a free initial consultation?

2. How much do you charge for this kind of work?

3. What kinds of cases do you normally handle?

4. How often have you handled cases like mine?

5. Will you need to consult with other attorneys?

6. About how much time will it take to resolve cases like mine?

7. About how much time do you usually take to return telephone calls from clients?

8. What methods do you use to inform your clients about what is happening in their cases?

9. Will you give a list of what costs you charge for?

10. Are you admitted to practice in my state?

IF YOU DO NOT HIRE AN ATTORNEY

Some bankruptcy files choose to go through the bankruptcy process without an attorney.

MAKE PEACE WITH YOUR DECISION/FULLY INFORMED DECISION

ASSESSING PAST

At some point, in the process it will be helpful for your future to truly assess your past and what led you to bankruptcy.  The purpose is not to make yourself feel bad or to blame others.  It’s a “no-fault” analysis.  What’s done is done.  Your assessments will help you learn from the past to ensure you make future decisions that put you in a position to succeed.  Sometimes in life things happen that are out of our control.  However, by thinking about the things we could have controlled, it helps to make sure a similar situation never happens again.