Is declaring bankruptcy as easy as it sounds?
My question is about bankruptcy. My husband and I find ourselves in a situation that makes bankruptcy sound like a lifesaver to us. We are drowning in debt of our own making that we were handling fine until the downturn in the economy. I know that our credit will be ruined for seven to ten years and that we are facing the humiliation of not repaying debt that we owe, but I can't help but feel relieved to think about getting out from under it all. The attorney we met with was very thorough in explaining the process to us and also let us know we were not alone. It seems so easy to do. Just claim bankruptcy and get a fresh start, but I have such guilt over this. I feel that we incurred this debt, so we should repay it. It's the right thing to do. Is it really so horrible to claim bankruptcy? We make our mortgage payments on time and we don't owe anything on our vehicles. We have tried selling our motor home to help pay down the debt, but we have not been able to sell it (we own it free and clear). There has to be more of a catch to the whole bankruptcy process. Is it really a get out of jail free card?
Over Our Heads in California
There are two bankruptcy plans. One where you skip out on your creditors and pay them nothing and one where you can pay off your creditors through a third party. My husband and I found ourselves on the verge of losing all and chose the second option for our own protection and we owed our creditors and felt that it was a dishonor to not pay them. Yes, the bankruptcy stays on your credit for seven years, but creditors also know that people want their credit restored and make a special effort to do so by paying on time. You may be able to keep your home and pay everyone off at the same time. It is a set back, but sometimes it is better to swallow pride and eat rather than keep the pride and starve.
Motive in Declaring Bankruptcy
To the reader asking about bankruptcy, I would advise her to let her conscience be her guide. Let it be known right from the start that it's not an easy process, but if you can't honestly see another way out, it can be a lifeline.
We went through a bankruptcy several years ago, due to a combination of medical bills and credit card debt. Like the reader, we felt like we were drowning, too. We read the Nolo Press book on bankruptcy, and between that and the free legal help offered through a local service, we did the paperwork, filed, and had our date at bankruptcy court.
Of course, we were nervous, but it was a fairly simple process. Other people were there for the same reason, and the judge went through each case, and if no creditors were there to comment on your request, that was it. The day we received the letter in the mail that stated we were officially free and clear was a huge relief.
It's been over ten years since then, so it's now off of our record. While it isn't something we're proud of, and it certainly is no "easy way out," it helped us to survive. More importantly, it was a huge learning experience that helped us to make far better choices to avoid ever falling into that trap again.
The reader seems to have healthy attitude toward bankruptcy. She's not trying to stick it to the system and get an easy handout (as many people are), but is genuinely pained by her situation and is simply looking for help in a desperate situation, which is what bankruptcy was created for, in my humble opinion.
In the Nolo Press book, I still remember a statement that put things into perspective for me. It mentioned how forgiveness of debt went back even to Biblical times as a compassionate way to keep people from "falling on their own sword" to escape from their desperate troubles.
Anonymous in Cali
Don't Declare Bankruptcy!
Please go to your local library and get Dave Ramsey's book titled The Total Money Makeover. He has helped thousands upon thousands of people avoid bankruptcy and get their lives back on track. He helps people learn to live without credit cards and shows you how to do a budget and live within your means. Dave Ramsey is also on the radio during the afternoon and on Fox Business Channel at 8:00 PM Eastern Time each night. Listen to him, read his book, and start his plan. Start with the "Baby Steps." You can do this without bankruptcy!
Bankruptcy Not Forever
Even if you do declare bankruptcy, you can still keep a list of all the debts discharged. Down the road, when you can, you can repay those debts even though you will not be legally required to do so. That, as you say, is the right thing to do.
Declaring Bankruptcy or Pay Debt
I have a close relative that filed bankruptcy five years ago and regrets it every day. In the short term, it seemed like an easy fix, but it still haunts him to this day.
You will sleep better at night if you work out a payment plan and repay all of this debt. You say you have a RV that is free and clear and are trying to sell it. Have you tried slashing the price to half and selling it? How about your vehicles? If you have two, sell one. Better yet, sell both and use public transportation. Now when I say sell it, you have to price it "to move." You need to raise cash fast. Sell things on eBay or Craigslist.
Once you file bankruptcy, not only is your credit ruined for seven to ten years, but also (legally or not) future employers can check your credit file. In most cases, they will not offer a bankrupt person a job that involves anything to do with "cash." Insurance carriers (medical, car, and home) check your credit report and raise rates on bankrupt people. Therefore, do everything imaginable to stay out of bankruptcy.
Do Not Declare Bankruptcy
Here are some things to consider:
- The money you owe will be paid. If not by you, it will be paid by someone else. This could be taxpayers or consumers who pay a higher price because others are not paying their bills. Debt doesn't just disappear, though it may be reassigned.
- By your own admission, the debt you now owe is of your own making. The payment of that debt should be yours as well. Will it be easy? No. Can it be done? Yes!
- I have a very dear friend who ended up heavily in debt not of her own making. Her husband gambled and ran up debt that she became responsible for even after they divorced. Her attorney advised her to declare bankruptcy to avoid paying her ex-husband's debt. She declined, and through several years of frugal living, she repaid his debt.
- Wouldn't you rather hold your heads high for doing the right thing than be in over your heads?
Learn from Declaring Bankruptcy
If there is no other way, then do it. I was in the same situation and tried going through a credit counseling service for a couple years and still could not make any headway. I calculated that by the time I would get through paying off my debt balance at the negotiated lower balances, I would still be close to half through the bankruptcy ten years anyway. The clincher was listening to our local consumer advocate discussing bankruptcy on his radio show. He said that bankruptcy was in place to help if you get into trouble and need to start over. According to him, the stigma was due to those that use and abuse the system. If you truly start fresh, rebuild your credit and maintain a good record, there's nothing wrong with it, so don't feel bad. It was the best decision I ever made for myself, and my credit has been spotless ever since. I will never let myself get into that position again. Rebuilding your credit isn't as hard as it sounds either. Seeing a bankruptcy on your record isn't as bad as in the old days. If you have a relationship with your bank or credit union, wait about six months after filing and then go have a sit down meeting with them. Explain your situation and they will most likely work with you (like a small personal loan to pay back and establish monthly payments) and then you'll be on your way back.
Tammee in Colorado
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