I resisted, vehemently to him, for weeks. For me the idea of filing for bankruptcy meant I was giving up, that I couldn’t do it.

Well no duh it was giving up. I wasn’t winning. At a certain point my mantra of “never give up” just becomes ludicrous. And so I filed for bankruptcy towards the end of 2007.

It was a good move. Looking at my personal debt now 18 months or so after filing, my situation has improved dramatically. Could I have made it without filing bankruptcy? Maybe. Probably. But at the time, it was the best decision for myself, my future and my mother (I owed her 145K at that time).

How has filing bankruptcy affected me since I did it a year and a half ago?

Honestly very little. I couldn’t approved for a home loan right now, even with a high income, but that’s fine, I don’t want to buy a house anytime soon.

I found housing after my bankruptcy and short sale via private landlords on craigslist just fine. I was upfront with my current landlord about my bankruptcy, and after checking my references and my payment record with my previous private landlord, I got my current apartment.

So, while I was initially repugnant to the idea of bankruptcy, in hindsight, it was a good move. It gave me a little breathing room when I desperately needed it.

You filed bankruptcy?

Has anyone else filed for bankruptcy? Are you glad you did? Did you file Chapter 7 or 11?

* * *

I’ve been reading the debt kid’s story with interest… how he came to be in as much debt as he is in and then decided bankruptcy was his only answer. I wasn’t quite as much in debt as this guy, but I thought I’d share my own personal struggle with debt – and how I avoided bankruptcy.

I put myself through four years of college at a private university (at the time I thought it was a better education than a state school, but now I realize there isn’t much difference in the real world unless we’re talking about Yale or Harvard or something!). By “putting myself” through college, I mean, I took out loan after loan, and put the difference between what the loans would pay and what I still owed on credit cards.

I graduated with close to $60,000 in school loans (about half are privately funded loans rather than federal loans), and a good $15,000 in credit card debt. Don’t ask me how I was able to keep getting approved for higher limits and more credit cards, but it wasn’t that difficult to do. I’d ask, I’d receive, I’d spend. As a college student, I prided myself in using credit cards only for college related expenses, thinking it made it “good debt” – while friends were using their credit cards and parents’ cards to charge their entertainment expenses. Either way- debt is debt and I was in trouble.

I was working full time for a government office, but my pay wasn’t anything exceptional and certainly not enough to cover living expenses and the loan payments and credit card payments. I was late on the bills simply because there wasn’t enough money to go around once all of the education loans came due; and to top it all off, I started a family just a few months after I graduated. Yes, I realize this was poor planning (or lack of planning?!) but it’s how it happened.

My expenses were increasing (new baby), but my income was decreasing (staying home with baby). I got a work-at-home position as an administrative assistant (no daycare needed), and supplemented it with writing jobs, but with $75,000 in debt and living expenses – I was still in trouble. My husband worked full time and made an average salary, but he had racked up debt and expenses from years of not really caring about whether he paid his bills or not!

We had to do something. Bankruptcy was considered and thrown out because you can’t write school loans off with a bankruptcy. Since the bulk of the debt was school loans, we didn’t think it would be very helpful in the long run to further damage our credit and file bankruptcy since we’d still have the $60,000 in school loans to deal with, and our living expenses.

My husband had a mortgage, and so he attempted to reduce his own expenses (cards in his name gotten before we got married, small loans, vehicle loan, etc) by refinancing his mortgage to include most of his other expenses. In the process, he was talked into taking the property and school taxes out of escrow for the “lower” monthly payment on the house – not understanding he’d still have to set aside $60 a week in order to have the money available for the taxes when they came due. So the consolidation of his debts with the mortgage refinance actually caused us to pay MORE per month than we had been paying previously!

Our next attempt to salvage the money situation was to use a loan from his 401K to pay off credit card debt. Having been an avid reader of personal finance blogs for several years now, I understand that 401K loans aren’t the best use of the money – but it seemed our only option. The interest we would save on paying off the credit cards with the 401K loan made it worthwhile to us to take from the retirement fund. Plus, when you repay a 401K loan, you pay interest on the money borrowed – which is also deposited into your 401K (so you basically pay yourself back with interest!). We probably lost money on the investment side of the 401K by having less in the retirement account, but I’m certain we probably gained in the long run by paying off credit cards that were at 20% interest or more!

We have sort of learned our financial lessons, although we’re still a long way from where we’d like to be. When we added to our family with our second child, I had a difficult pregnancy that put me on bedrest for awhile – reducing my income temporarily and making it difficult to keep up with the school loan payments (again). The federal loan programs allowed me to defer the loan payments for a few months, but my private education loan through Wells Fargo did not offer a deferment program or any other alternative payment method for this difficult time, and charged my loan off when it was 91 days late as per the contract I signed when I was 19 years old. This of course, further damaged my credit, and the only way to get this loan out of collections is to either pay it in full (about $24,000 right now, after the company added close to $8,000 in fees and such immediately before charge-off), or make payments for years until it’s paid off – but during which time Wells Fargo will not update my credit report to reflect the payment status and so my credit score will not improve by making payments.

We rarely use credit cards, but when we do we pay them off within a month or two of using them. I think the point I’d like people to take from this post, is that even when you think bankruptcy is the only answer- reconsider. If you have retirement, a way to consolidate, or a family member willing to help you get your act back together again, you will probably be better of using these alternative resources rather than filing bankruptcy.

This actually wasn’t completely unexpected. About a week ago I received a call from a process server (I was at a BBQ) when she was at my apartment. A week later (Friday’s must be the ideal serving time), she showed up.

The bad news: She served me right in front of my employee.

The good news: She basically just handed me some papers and it totally looked like a courier deal. My employee didn’t even ask anything of it as I quickly jumped back to what we were discussing.

All in all, this actually went down very well. When I missed the “serve” last week I was really freaked out. Looking at the paperwork today though, I’m not too worried.

The lawsuit is Citibank filing a personal judgment against me for one of my business credit cards I had with them. The thing is, I listed all my business debts on my personal bankruptcy filing and so I’m 99% sure that they cannot go after me personally for this debt. I was expecting the “serve” to be at my business, but nope, it’s 100% just at me personally.

Oh, and they listed me as a “married man”. Ha! I wish…

Anyway, I have an e-mail into my bankruptcy attorney to double check that we listed this account, but even if it wasn’t listed I’m pretty sure I can contest the judgment against me (at least personally).

Anyway, it made for a pretty eventful day. I also completely rearranged my home office and I now look out a window and can enjoy some beautiful Seattle sun.

Photo credit: http://www.flickr.com/photos/babygirlvans/

When must a reaffirmation agreement be signed?

The Bankruptcy Reform Act of 2005 states that any reaffirmation agreement(s) must be entered into prior to the filing of a discharge in bankruptcy and before the debtor actually receives the many disclosures required from his creditor. The document must also be approved by the court and not rescinded by the debtor prior to the discharge being filed. The court can also refuse to sign the reaffirmation agreement if it is of the opinion that the debtor cannot afford the payments called for under its terms.

Some creditors believe that the new 2005 bankruptcy law requires that a debtor sign a reaffirmation agreement if they want to retain the vehicle. However § 524(c) states that any obligation must be ‘enforceable under applicable non-bankruptcy laws, whether or not such a debt is waived.” As a result, if the debtor is current on his payments, keeps his vehicle insured and still refuses to sign a reaffirmation agreement, there appears no default that is enforceable under non-bankruptcy laws. Moreover, most bankruptcy judges are anything but eager to sign such an agreement if the debtor can’t or doesn’t want to afford the extra payment. Neither would most attorneys. Thus, the smart debtor doesn’t sign a reaffirmation agreement unless it includes better terms on a new contract and he is certainly permitted to do so.

The best advice

As a debtor, there seems little risk in signing a reaffirmation agreement provided that you feel you really need the property (such as a car to get you to and from a job) and unless you know you can’t afford the payment. Nevertheless, you have nothing to lose if you try to renegotiate your contract before you sign and don’t forget that if you’ve had the property for some time, its current value is less. The lender will very likely go along with your suggestions because it is to his advantage financially.

In the end, whether or not you sign a reaffirmation agreement comes down to how badly you want the property and whether or not you can afford to continue the monthly payments. If you need the property and the money is there, go ahead and sign. If not, let the property go and start over to rebuild your financial status with a really clean slate. Only you can make an informed decision.

You should try to avoid Bankruptcy at all costs!

Chapter 13 is normally utilized by people who have suffered a catastrophic financial event such as a sudden job loss or major family illness. It is used by both individuals and businesses and does not negatively impact credit to the degree that a Chapter 7 filing does, because it demonstrates to creditors that you are willing to pay your debts despite the problems.

What Must a Debtor (filer) Do?

Prior to filing the Chapter 13 action, you must complete a U.S. Trustee approved credit counseling briefing. Once completed, a certificate of completion must be filed with your petition. Your case really begins when your attorney files the petition in federal bankruptcy court. When a Chapter 13 action is filed, it places a ‘stay’ in effect under 11 U.S.C §§ 362 that prohibits your creditors from harassing you or attempting further collection activities. A notice of your filing will be sent to the entire list of creditors you provided within fifteen (15) days of filing.

The Chapter 13 Timeline

As previously stated, your case begins on the date your attorney files your petition with the federal courts. Approximately 15 days later, the court issues a notice of commencement of the case to all your creditors. This notifies them that the ‘stay’ is in effect and sets the date for a 341 meeting of creditors before a court-appointed trustee. It also informs your creditors of the final date for filing any complaints or objections with the court (usually 30 days). Your planned re-payment schedule must be filed within fifteen (15) days of filing unless your attorney included it with the original petition. Approximately 20-40 days later, the 341 meeting of creditors is held. In most cases, few if any will actually attend unless the amount due is extremely large. You can expect to be discharged within 60-90 days after the 341 meeting date.

What Must You Do to Qualify for a Chapter 13?

In order to qualify for filing a Chapter 13 bankruptcy, the following must be shown:

• You must have a regular income that will permit you to make the pre-determined payments to the trustee in bankruptcy who will distribute funds to your creditors.

• You have to show that you have an adequate amount of disposable income so that you can make regular payments to the trustee AFTER covering your current living expenses.

• You must also show that your disposable income falls within the pre-set limits for both secured and un-secured debts. These limits are updated occasionally and your attorney will be up to date on what they are. In May 2007, these limits were $1-million for secured debts and $337,000 for unsecured debts.

Some important Cautions…

For either Chapter 13 or Chapter 7 bankruptcies, you should be aware that any assets transferred to family members, friends or some business associates will be considered as ‘preferential’ and disallowed by the court. The court may also dismiss your petition altogether if it believes that transfers of ownership or sales of assets were done to defraud your creditors.

You also cannot file a bankruptcy petition if you had a previous petition dismissed within the past 6 months of this filing.

You should try to avoid Bankruptcy at all costs!

I would recommend trying to consolidate your debts before turning to Bankruptcy.

Click here to get started.

In doing this, however, you do stand to lose any non-exempt assets you may have (stocks, bonds, cash in savings accounts, valuable artwork, etc) to the trustee-in-bankruptcy appointed by the court. These are ordinarily sold and distributed amongst your creditors. This includes any income tax refunds that are due to you.

Fortunately, you are permitted to retain some important assets that the court considers exempt under federal law. These include your house, your car, clothing, personal items like furniture and house ware, etc. The usual cost due to the court for filing is just under $300.00.

What the Debtor (filer) Must Do

First you and your attorney must attest to the fact that you understand that you are filing factual information and also that data being provided is warranted under existing federal law. This simply means that you understand both the state and federal laws that apply to filing under Chapter 7. The required forms under §521 and the Means Test in Official Form B22A (which determines your ability to pay certain costs) and numerous other documents are complex for any layman at law and should be handled by an attorney.

If you make too much money to file Chapter 7, you should look at filing Chapter 13 Bankruptcy.

Filing a bankruptcy has become considerably more complicated since the Bankruptcy Reform Act 0f 2005 became law. It includes, among other things, the necessity that the debtor attends one class or credit briefing before filing. Today, attorney’s fees for filing a Chapter 7 range from about $1275.00 for a simple filing to as much as $2,500.00 for complex cases. Anyone who attempts to handle his or her own bankruptcy today can reasonably be said to have had a ‘fool for an attorney.’ These filings are just too complex for a non-lawyer to handle properly.

The Chapter 7 Timeline

In most cases, you can expect to be adjudicated a bankrupt within 4-6 months from the date your action is filed in the federal bankruptcy court. While there are some important things to consider and do prior to the actual filing, your case really begins on the day you file it with the court. This is the day that the ‘automatic stay’ (temporary injunction) goes into effect. It prevents your creditors from contacting you, harassing you or dunning you for payment in any way. The next important date is approximately 20-40 days after filing. This is the 341 meeting of creditors with the court-appointed trustee.

In most cases, unless the debt is very large, your creditors will probably not even show up. You (and your attorney) must be present and be sure to bring your social security card and a photo ID. If the trustee requests any additional documents, be certain that you supply them as quickly as possible. You can expect to be discharged within 60-90 days after the meeting of creditors.

What Happens to My Secured Property?

Certain property that is secured such as your house and a financed car, boat or RV, may be repossessed by the lender and cannot be discharged in a Chapter 7 action. The thing to do here is ask each lender to accept a ‘reaffirmation’ of your debt. This means that you agree, in writing, to continue making the payments after you are adjudicated a bankrupt. Most lenders are happy to agree, since you have discharged your other obligations and cannot file bankruptcy again for seven years.

You should try to avoid Bankruptcy at all costs!

I would recommend trying to consolidate your debts before turning to Bankruptcy.

Click here to get started.

When your finances reach the point where you consider them terminal, bankruptcy will provide relief in the sense that it will halt the never-ending dunning letters and telephone calls from creditors and collection agencies. The effect that it will have on your credit standing depends in part on which type of bankruptcy you file.

Chapter 13 Bankruptcy credit issues

Chapter 13 bankruptcy, also referred to as reorganization, does not discharge your obligations. What it does do, is permit you to ‘work out’ a plan for paying them off in amounts and timeframes that you can manage. Chapter 13 is designed to provide a solution for people who have suffered a short-term financial problem due to a job loss, sudden catastrophic illness, etc. If you still have a regular income and wish to avoid the stigma of a Chapter 7, a Chapter 13 filing can give you the time you need to correct your problem. This filing will combine an automatic ‘stay’ with three to five years to catch up on your backlog while you keep current on your ongoing monthly expenses. You will have to complete a U.S. Trustee-approved credit counseling briefing with your petition in order to have the court place a stay or hold on a foreclosure or repossessions. Your creditors will receive a notice from the court that stops their collection efforts and dunning in approximately fifteen (15) days after you file your petition.

A Chapter 13 bankruptcy will have a negative effect on your credit report, but it does show your willingness to pay your debts rather than to discharge them. That should help you obtain new credit within a year or so.

Chapter 7 Bankruptcy credit issues

From a credit standpoint, Chapter 7 bankruptcy is the blackest mark you can have on your credit standing. While it absolves you of the debts you owe (except for monies owed in child support & alimony or unpaid income taxes), it makes obtaining new loans or credit cards extremely unlikely for at least a year or two and perhaps longer. There are some exceptions. Federal student loans, for example, are not granted based upon credit history or income. In fact, federal law prohibits discriminating against applicants based upon these factors.

Getting New Consumer Credit Will Be Difficult After Either Bankruptcy

You may be able to obtain a home loan beginning two years after being discharged in Chapter 7, or as soon as one year after filing a Chapter 13. FHA and VA-insured mortgage loans can be had as early as one year after filing either bankruptcy petition. Normal consumer credit, such as revolving charge accounts or credit cards, will be much more difficult to secure, as they are determined by the credit standards of the individual lenders.

Delete Bankruptcy from your credit report (legally!)

If you’re credit has some issues, and you want results a little faster, you might check out a service like Lexington Law. It’s not going to be free, but I’ve seen results that are pretty amazing. They have even been able to get Bankruptcies removed from people’s credit. I’m planning on trying them out in a few months.

You have no money, which is why you’re filing for bankruptcy, yet it costs money to file bankruptcy. There really is not such thing as a free lunch! (and Bankruptcy is no free lunch, let me tell you)

Bankruptcy Costs

The us bankruptcy courts have filing fees. Chapter 7’s filing fee is $299, Chapter 13’s filing fee is $274. On top of that you have…

Attorney Fees

That’s not so bad, right? Well, hold your horses, that doesn’t include a lawyer!

Look, I had enough trouble just filling out the paperwork that my lawyer gave me. I can’t imagine trying to fill out and gather all the necessary paperwork and deal with the trustee all by myself.

When you’re thinking about Bankruptcy, it’s likely you’re very stressed (I know I was…heck, I still am). Most lawyers will have an option to pay their fee in installments. If they don’t….move on.

That said, I wouldn’t recommend the cheapest lawyer in your area either. I’d look for perhaps newly on their own bankruptcy attorney. Often new lawyers will work at a large firm out of Law School for a few years, then strike out on their own practice.

My experience with my lawyer was that although she was younger, she was very experienced (had worked at a large firm for a few years), but not outrageously expensive because her own practice was fairly new. Obviously this is just my two cents, most Bankruptcy attorneys will give you a free initial meeting. Setup 3-4 in a day, and see who you feel most comfortable working with and who is willing to work with your financial situation.

You’re going to end up paying anywhere from $700-$2000 to file Chapter 7, depending on what area of the country you are in. In my opinion having a lawyer severely lowered my stress during this whole process.

Setup a free evaluation. Best thing I did

A local bankruptcy attorney can help you understand the differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy, so that you can make an educated decision about the best next step for you. Fill out the form below for a free bankruptcy case evaluation.

I had my “meeting of creditors” today in US bankruptcy court.

One word to describe the whole thing?

Awkward

You’re in this room with a dozen other “debtors” and the awkwardness is as thick as pea soup. I think my meeting with the trustee went fine, in fact, it was not nearly as stressful as I thought it might be.

Payments to Family

I figured the payments to my mother might come up, and they did. When I explained why I send money each month, he replied, “She must have raised you right”. And that was the end of it. I nearly cried. He could have chosen to maybe go after my mother, but I don’t see that happening based on his response.

Back to the awkwardness…

So, there is this (attractive) girl with her lawyer there. All I can think is, “I wonder how she ended up here…” Likely she was thinking the same about myself. The rest of the debtors were mostly middle-aged, and everyone looked nervous.

341 Meeting

I’m glad this 341 meeting thing is done. Assuming no other hangups, my Chapter 7 bankruptcy should be done in a few months. I still need to do the online financial education part, but I’m pretty sure that will be a piece of cake.

I got a little emotional once I got back to my car. Just one more stop along my journey…

A Bankruptcy is supposed to be like somewhere in the top 5 most traumatic life events right? I swear I read that somewhere, maybe I’m nuts. Anyway…

I’ve screwed up so royally in the past 3 years that this just feels like another step. Not a turning point, but just another step. Stopping my trading addiction was a step, avoiding the foreclosure on the house (with a short sale) was a step, getting an apartment so I wasn’t sleeping on the floor of my office was a step, this BK is another step.

Steps, steps, steps. Those 4 I listed above all happened within the last 8 months. And I see at least another 4 pretty big steps that are going to happen in the next 8 months.

Stepping is tiring. But I will keep doing it! I have too!