Credit Cards

Bankruptcy – sometimes filing just makes sense

Look, we hate to say it but sometimes it really does make sense. We understand that you may feel ashamed or afraid. But truly, with the current economic conditions you may be better off starting fresh. After all, that’s why it was created. To provide you with a fresh start. Studies have shown that most people end up struggling longer than they should. Most people hardly ever explore this option before they are at their wits end trying to make ends meet and by then, they’ve lost assets that could have been protected. With unemployment above 10 percent, record levels of credit card debt, skyrocketing health-care costs and many Americans facing foreclosure or paying for homes that are worth far less than what was owed – it’s scary out there.

The right time to file for bankruptcy is when you are financially stuck but still have assets that can be protected. Most people don’t realize that IRA’s, 401(k)s and even your child’s 529 college-savings plans are usually protected. Bankruptcy can usually help save your home, your car and even stop a wage garnishment and in most cases stop a pending law suit.

Last year there were 1.4 million new cases filed nationwide. Most of those filings are a direct result of the current recession. Either people lost their job or had their hours cut back or their mortgage rates reset and increased to an amount they could no longer afford, or a combination. Traditionally, over 80% of all bankruptcy cases that are filed are directly due to circumstances beyond the filers control, defined as; emergency medical expenses, loss of employment, higher minimum payments on credit cards, change in marital status, death or other unexpected events. Many financial experts will tell you that you really should consider filing for bankruptcy if you can’t figure out a way to pay off your credit card debt or other unsecured debt, within a five year period.

Even though the bankruptcy laws have changed, it is not impossible or more difficult to file (there are a few more obstacles but we wouldn’t call them difficult). If you do file for bankruptcy, your life is not over. Here are some things you should know about filing for bankruptcy:

  • All of your debts are not wiped out in a Chapter 7 bankruptcyThere are certain types of debts that can not be discharged under Chapter 7. Court ordered child support; alimony and debts incurred by fraud are not dischargeable. Some taxes and student loans may also not be dischargeable.
  • You won’t lose everything that you haveWhile bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your clothes, household goods, your home and your car (up to a certain value) as well as qualified retirement plans.
  • You must list all of your debtsEach creditor that you owe money to must be disclosed in your bankruptcy petition. Some people feel that there are certain creditors that they really want to pay back. That’s fine. Although the debt may be discharged through a bankruptcy and you have no legal obligation to pay back those selected creditors, there is nothing preventing you from doing so. If that is what you wish. You can talk to your attorney about entering into a reaffirmation agreement, which brings me to point #4. But you can’t play favorites. Every obligation must be listed.
  • It’s not difficult to file for bankruptcyIt really isn’t. The forms are pretty straight forward however, with reaffirmation agreements, non-discharge ability or relief from stay actions, you really should not go through the process without legal counsel. They can answer your questions and provide you with a peace of mind more so than doing it on your own.
  • You are not a deadbeat if you file for bankruptcyMost people file for relief after a life-changing experience, such as a death of a spouse, divorce or job loss or after a serious illness that left them with thousands, if not tens of thousands, of dollars in unexpected medical expenses. There was an evaluation made of 60,000 filers after the new bankruptcy law went into effect, as part of the new rule, they were required to go through credit counseling first to pre-qualify, only about 3% didn’t qualify for relief.
  • Don’t max out all of your credit cards and then fileWhen you disclose your debts and assets in a case, your trustee will review (and so will your creditors) all of your purchases that you made prior to the case being filed. Debts that were incurred during a specific period prior to the filing could be deemed non-dischargeable based upon fraud. If you find that bankruptcy may be a path that you are heading down, don’t incur any additional debt and talk to a reputable bankruptcy attorney.
  • Prior to filing for Bankruptcy, know and explore all of your optionsWhen all is said and done, bankruptcy should be looked at as your very last option to get you out of debt.