Man, am I loathe to ask this question, but here goes:
I am trying to get some advice and guidance on whether I should declare bankruptcy. I have free 30 minute consult with a bankruptcy attorney today, but before I pull the trigger I want to make sure it’s what I should do.
I don’t even know which experts to ask to see if this is the best idea. Where should I go for advice?
Here’s my situation: I got sick in 2012 and wasn’t really able to work until the fall of 2016. I am 48. I have no savings and no retirement. During the time I couldn’t work I relied on what little money I had and credit cards. Long story short, I am slowly returning to work but at this point can only handle low-stress jobs. I gross about $29,000/year. I owe around $34,000.
God, that makes me sick to my stomach to admit.
Perhaps declaring bankruptcy seems obvious, but I just don’t want to make a huge mistake and I don’t know who to ask. If I declare bankruptcy, how do I chose and attorney?
Please be kind. This is very hard for me to discuss.
These are the questions to ask your attorney. He’s not there just to help you file the papers, he’s also supposed to advise you about whether bankruptcy is in your best interests.
I mean, he is a bankruptcy attorney so he might have an “every problem looks like a nail” attitude, but he’s supposed to do more than that.
Talking to an attorney about bankruptcy doesn’t put you on an inevitable conveyor belt to bankruptcy, it allows you to discuss your problems with someone who has a great deal of experience in this problem.
I should have clarified, I don’t actually owe to doctors. I was able to hustle and sell plasma and what-not to pay for care. The debt comes from the cost of living for everything else.
There’s no way you’re ever going to pay that off. Short of winning the lottery, bankruptcy is really the only way you’re going to get rid of that debt.
Do you own a home? Own a car? Have a yacht stashed away somewhere? Got any other significant property?
If the answer to all those questions is “no,” you can pretty much pick any bankruptcy lawyer in the phonebook. For simple straightforward cases I believe it’s basically just a matter of filing the right paperwork, but of course everyone’s exact situation is different.
I was in a similar boat a few years back, and I, too, was hesitant, but it’s the best thing I could have done. It’ll cost you about $1000 up front (for obvious reasons, bankruptcy lawyers tend not to take credit) and you’ll have to appear in court at least once (it’s more like a hearing) to get your debts discharged, and I found the experience to be quite painless, granted I had a very simple case.
My friend is a bankruptcy lawyer and if other bankruptcy lawyers are like her, your meeting will be incredibly helpful and you will have the exact answer tailored for your situation by the end of it.
No need to ask a bunch of strangers on the Internet about “should I or shouldn’t I?”
But - if they do decide that bankruptcy is the best course, come back here to get help coping with it from others who have gone through it!
Do you live in a home w/ a mortgage in your name? The principal residence you list in your Bankruptcy documents will have the protection of the bankruptcy courts post-petition; it cannot be taken from you by foreclosure so long as payments continue to be made. It does NOT matter if you did not include your pre-petition mortgage payments in your filing for protection; your principal residence receives automatic protection.
If you rent your principal residence, the protection will still apply; if there’s a mortgage your landlord will be notified of the filing and they can ask for the protection to be removed. Their credit should not be impacted by your filing but in my experience they always ask to have it removed.
Perhaps an obvious question, but how do you think declaring bankruptcy will help you? Both in the short and long terms? Could you contact your creditors and say that you can’t pay and negotiate from there?
While they’re under bankruptcy protection nothing is reported on their credit post-petition for up to 6.5 years so they can begin to rebuild their credit and their credit score; I don’t know about Scotland but here in the US your credit score can determine things as trivial as what you pay for utilities.
They can still continue to pay on their debts if they choose. W/o the bankruptcy protections, every month there’s another black mark on their credit. Even paying a negotiated sum means a credit message that you’ve done so and that dings your score as well.
How many companies and what kind do you owe? If it is all credit card debt they may be willing to do negotiated solutions (20 cents on the dollar is better than nothing from their point of view).
Only once, when you file. Then as one is reworking their financial life their credit will rebuild and some new creditors consider only how long it’s been since the BK was filed when considering an applicant.
In less than a year from filing the person will be flooded w/ credit card applications and in about 3 years the BK will have little effect on their chances at a home or car financing if everything else is copacetic as far as their finances.
It’s a reset button for those who can use it correctly and who cooperate w/ their trustee; it’s not free and I hope it’s not undertaken lightly but in my experience in the mortgage business I have seen lots of people several years into their BK who are still confused about certain terms of it - especially to do w/ post-petition and pre-petition debt.
Obviously the different chapters have different terms and protections so YMMV.
PS, the person can choose to end their BK prematurely if they want.
They will all remain on credit as negatives for 7 years. “Pay for delete” is possible but difficult.
Any debts forgiven over $600 will be reported to the IRS as income and 1099s will be issued. There is an exemption for “insolvency,” but it’s tricky and probably easier to have the official bankruptcy as official insolvency.
20 cents on the dollar being better than nothing seems logical, but original creditors often just sell the debt in bulk to junk debt buyers for pennies on the dollar instead of accepting anything significantly less than 50-70%
It might not be much if any savings. Just not paying them at all and daring them to sue would probably be as effective. In fact, in many cases you only get the really good settlement offers if you stop paying for several months first. some people do a “poor man’s bankrupty”- Stop paying, hope no one sues, allow 7+ years to pass for credit reporting and wait out your state’s statutes of limitations. The main issue with that is someone will usually sue. I went through this almost 15 years ago and a credit card and bank with a 5 figure balance never sued but a $70 doctor bill (that was supposed to be covered by insurance) not only sued but got an judgment placed on my credit for 7 years AFTER I paid the debt well before the court date because I wasn’t savvy enough to answer.
My only negative experience with debt relief, credit counseling, Bankruptcy attorneys and the like is that I think they are going to recommend filing no matter what you want to do. I tried to hire one to help me negotiate a debt and they only wanted to file BK, even though they advertised debt settlement as one of their services. Maybe I just got a bad one.
To answer the question about my goals with a bankruptcy, I must say that I don’t see where I’m going to ever be able to pay off this amount of debt in a reasonable timeframe with the kind of income I foresee for myself. My biggest concern is that I am running out of time to fund my retirement and that I have no savings anymore. To me (and I may be wrong) it doesn’t make sense to spend what little I have toward a mountain of debt when I need to be saving.
If I had a higher income or a spouse or I was younger I probably wouldn’t consider filing. TBH, this is a real ding to my sense of myself because my whole life I’ve paid my bills on time. But if this is the wisest course, then that’s what I should do. I’m just wanting to make sure it actually IS the wisest course. And it sounds like it is.
ETA: Thank you to everyone. The actual nuts and bolts of how this works and what my options mean in real terms is very helpful.
Remember Carol, that bankruptcy is a business decision. Corporations do it every day w/ a clear conscience b/c they treat it as a business decision. Your tax dollars go to fill in their shortfalls while they get the deduction.
Depending on the chapter you file you’ll send money to the trustee (who you’ll also pay) and they’ll disburse it to your creditors; as your middle man they say, implicitly, ‘This is what they can afford to pay you and we have proof of it. It’s not ideal but something is better than nothing.’
Was your success as great as you hoped when you started out? No. But failed? I wouldn’t say that either. You can’t control the world and all its circumstances and you’ll never know all of the circumstances that brought you to today. You tried and I bet you’ll keep trying.
I’ve known a couple people who filed bankruptcy due to medical bills or other catastrophe and within 5 years had a credit rating back in the high 700’s or even breaking 800. Of course, not everyone does this, it requires self-discipline, and there are difficult hoops to jump through but it really can be a way to get back on your feet financially.
Do talk to a bankruptcy attorney as to your options. You don’t have to file, but you should make that decision with full information.
Bankruptcy law is not my field, but my recollection is that in Chapter 7, any home equity above the applicable homestead exemption may be seized. The home could be protected under Chapter 13, but to get that protection, I think the debtor has to pay creditors at least as much as they would have gotten in Chapter 7 (i.e., the debtor has to pay out an amount equal to his or her home equity). I may well be wrong.