My little sister has run up a mountain of debt, and doesn’t see how she can ever afford to pay it off. So, the question is: How bad is Bankruptcy? How much will it screw with her life, and for how long?
She doesn’t think she can handle the payments with one of those consolidation or counselling services, but maybe I can convince her otherwise.
It depends on the state in which you live. The best bet is to get a bankruptcy lawyer, and he or she will handle it all for you (more or less).
In New Jersey, I paid a flat fee to a lawyer (~$1000, I believe), and the first thing he did was contact each of my creditors. This meant that all of the correspondence I was receiving - including letters and phone calls - was now directed to him. I was never bothered again by them.
The lawyer knows what paperwork to file, which can be very helpful when dealing with bankruptcy (that is, I considered it pretty complicated, and I was glad he was handling it). A hearing date is then set, and you go in with your lawyer. When I went, the room was filled with other people who were also filing. The judge hearing the case sat at an ordinary table with a tape recorder on it. He asked me a few questions, I answered, and it was all over in about 90 seconds.
Now (and again, this is NJ, so your state may vary), I was told the bankruptcy would be in effect for 7 years, meaning that I could not get loans. However, of course, you can always get credit cards. There are CC companies who will give you a card even if you owe the GNP of Brazil. You just have to be very careful about them, as they’ll have very high rates.
Hope this helps.
Zev Steinhardt
Actually, this page from Nolo is a better page to use. The previous one I linked to is strictly about bankruptcy from a Massachusetts perspective.
Zev Steinhardt
That wasn’t our experience, which was also in NJ. It was the early '90s. It took a few years before we could get any credit cards at all, and then when we could it was only with a secured account. Still later on, we could get unsecured, but only with $300 limits or so. And all with ridiculous interest rates. Tried to buy a car about a year after filing, and they needed about 20% down payment, and high interest.
My recommendation: Try the Budget And Credit Counselors first. If it looks like bankruptcy is the only way out, get one or two credit cards first, make sure to have zero balances on them, and I’m pretty sure that you can legally keep them of fthe bankruptcy papers (check with the lawyer, of course), and you’ll have those cards for emergencies if you need them.
The fact that I was (and am) single might have something to do with that; maybe if you file a joint bankruptcy, it’s that much tougher to get credit?
Here’s my experience:
Your credit worthiness post bankruptcy depends a lot on your income and debt to income ratios. If you’re making good money and your mortgage or rent is within reason, you’re can actually be a decent risk. If your income is more moderate and/or you’re paying high rent, you would probably be required to make a down payment on a car large enough to bring your ratio into range. Remember, once you’ve filed a 7, you can’t file again for seven years. That means no protection for seven years. Any potential lender knows you’re going to pay, one way or another.
IANAL,
I have studied creditors and debtors in class where bankruptcy was a major part of the course.
First, dantheman’s advice to begin with is the best: get her a lawyer. Laws vary wildly from state to state in this area and it’s best to get them sorted out cheaply from someone in the know.
For instance, does she own a house? In Kansas and about 5 other states if you own your house it cannot be taken away from you during bankruptcy. You are 100% protected no matter how large or small your property is. In other states it could be that you keep the first $30,000 and the rest goes to your creditors.
Does she have
A burial plot?
Retirement plan?
Savings account?
Furniture?
Student loans?
Car loans?
Home loans?
What about gifts she’s gotten and gifts she’s given? Those will be looked at too.
All this and much more needs to be taken into consideration before filing for bankruptcy. If it’s student loans, however, she will almost assurdly not be able to escape them through bankruptcy.
In general, though, you have two options for bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 basically much means you give up tons of stuff, start over from scratch (minus exemptions), and you’re now debt free.
Chapter 13 basically means you create an individualized payment plan where you pay off some of your debtors some of your debt over a 3-5 year period.
Which one is right for your sister? Is either right? Again (you know the drill by now) consult a real attorney which can look at all the factors before giving advice.
I heard on the news (maybe NPR) that those executives involved in the Enron, Worldcom, etc., matters would be able to keep their multi-million dollar houses if they filed for personal BR. I also met a guy who said he was able to buy a car (very small, inexpensive one) and obtain a credit card within a year after he and his ex-wife filed & were granted the chapter 7 one. The info. above looks good.
Where’s Philster when you need him? He’s a manager at one of the major credit unions…
Zev Steinhardt
That’s another thing - what you can declare as an asset. The way I understand it, you can declare things like your home and your car as assets, as you need them to live (as opposed to stereos, computers, and so on). I know that’s not true all the time, because in certain situations the creditors can take them (maybe if you’ve run up hundreds of thousands of dollars in debt).
I would be doing you a disservice if I didn’t direct you to a discussion forum dedicated to credit, bankruptcy and credit repair.
www.creditnet.com -> discussions -> click discussions again
Ask there, dozens of people who’ve been through bankruptcy will answer.
I would be doing you a disservice if I didn’t direct you to a discussion forum dedicated to credit, bankruptcy and credit repair.
www.creditnet.com -> discussions -> click discussions again
Ask there, dozens of people who’ve been through bankruptcy will answer.
PS - Some of these folks have actually GOTTEN RID OF the bankruptcy on their credit reports, only 18 months after the bankruptcy was discharged.
Thanks for all the advice. I will help her get a lawyer.