Bankruptcy

Read this bankruptcy forum. A lot of people have been in your shoes. And it is nowhere near as bad as some make it out to be.

ddmees -

I was in that situation myself a few years ago. I attempted to go through a licensed credit counseling agency to eliminate my debt and keep my home, and was devastated to hear them say "sorry, we can't help you, you probably should file bankruptcy".

As Soaplady says above, Bankruptcy is not the end of the world. It will be a trying time in your life, but it won't kill you. Yes, your credit will suffer for a few years, but it will eventually recover.

I don't normally recommend bankruptcy to anyone as a method of eliminating debt, but sometimes there simply is no other choice.

If you have other questions, please feel free to post them. I hope you'll be able to find peace with whatever decision you have to make.

Thanks so much for the hopeful advice. I have read the forum and it helped immensely. I will have questions for this group as we move forward, such as what can be saved, what can be taken (cars, etc.). I'm most worried about affecting my 3 kids and the ability to help them with college costs, loans, etc.

Suebeehoney70 - how long of a process is it? What you described above was exactly how I felt. I really thought we'd crawl out of it, and was totally shocked at the suggestion. Should we go to another credit counseling agency for a second opinion? Can you tell me a bit about what to expect?

What to expect depends largely on the type of bankruptcy you file.

You go to a bankruptcy attorney and discuss your situation with them. You should be able to find one in the phone book that offers free initial consultations.

Once it's decided that you should move forward with the bankrupcty, the attorney will ask you a few questions and will perform a "means test" on your income & assets vs. your debt. If you have the ability to pay back even a portion of your debt, and have a job, you will most likely fall into the Chapter 13 Bankruptcy, which is also called the "wage earner plan".

Chapter 13 is basically a debt consolidation, wherein you pay back a portion of your debts through a garnishment on your wages, directly to the Bankruptcy Trustee. The payment plan lasts 3 to 5 years, and takes a sizeable chunk out of your paycheck every pay period. The bankruptcy law determines what is "disposable income" and takes that to pay your debts. Your version of "disposable income" and theirs may vary greatly! You must keep in mind if filing Chapter 13 that while you will be repaying debts through this plan, the attorney gets their money first - so your first several months of payments will pay the attorney fees only. Also, while you are in the payment plan, you will be paying off only those debts that you included in the plan - you will obviously be incurring new debts at the same time. Car repair, home repair, hospital & doctor bills, vet bills, clothing, etc. - all of those things still need to be paid while you're on the Chapter 13 payment plan - so you need to be fully aware of how much the plan payments will be, and you need to sit down and figure out if you can survive on what's left of your paycheck after the plan payment is taken out. A large percentage of Chapter 13 plans fail because the consumer has not budgeted for the sudden drop in income.

Chapter 13 allows you to keep your home and continue paying the mortgage, as well as keeping your car and making payments on it. You can include the mortgage and car payment in the plan if you are behind on them, and that will stop foreclosure on your home - or you can choose to pay them outside the plan.


If you have little or no assets and cannot repay your debts, you will fall into the Chapter 7 Bankruptcy, wherein the Trustee evaluates all your assets (exemptions for certain assets are made, and vary from state to state) and if necessary, will sell any excess assets to repay your debts before discharging the balance of the debts. Once the debts are discharged, you're done with the bankruptcy.

What you can keep and what you need to surrender to the trustee in a Chapter 7 depends entirely on the state you live in and how much you have in assets. If you only have the home you live in, one car, and no expensive jewelry or luxury items, then you'll most likely be allowed to exempt your assets and keep them.

However...

If you have a home, a summer cottage, a boat, a fur coat and a few diamond baubles, you can pretty much count on having to give up the cottage, boat, coat and baubles to the Trustee in a Chapter 7.

You do have a choice to file either Chapter 7 or 13, but you need to be sure you are willing to follow the rules to the letter when you do, and you need to know the effect it will have on your life.

Bankruptcy will stay on your credit record for 7 years, at least.

Once your bankruptcy is filed, you will need to take two online counseling courses - one before you file, and one just before your case is discharged. They usually cost about $50 each and that comes out of your pocket.

There will be a meeting of the creditors, which will be held before the Bankruptcy Trustee. All of your creditors will be notified of this meeting, and if any of them wish to object to your filing bankruptcy for any reason, they need to show up for that meeting. Usually none of them do, but it is possible. I've always heard that Sears is a stickler on this and usually shows up if you have a Sears credit card with an outstanding balance involved in the bankruptcy.

I hope that helps. Your first step is to get to a bankruptcy attorney and discuss this with them, and see if you truly want to file bankruptcy.

A Chapter 13 stays on your credit for 7 years, a Chapter 7 remains for 10 years.

Thanks for answering my questions so directly. That helps so much. I'll keep you all posted.