bankruptcy

[ASUADPi]

I'm not sure why I thought of this, but there have been tons of commericals (on tv and radio) about filing bankruptcy, so I got to thinking...

How does bankruptcy really help someone?

Say for example someone has credit card debt up to 5k, a car loan and student loans. How is bankruptcy really going to help them? Nothing can help you with your student loans (don't even get me started on that BS). Would my fake person have to give their car back? What about the credit cards?

I guess I'm a dork and just wonder about the most random stuff. LOL.

My parents filed bankruptcy like 20 years ago and when I questioned them about it like 5 years ago, they just said that their credit score was pretty bad for like 7 years but with the bankruptcy came like a "new" credit (like wiping the slate clean).

[AGDee]

The people I've known who filed bankruptcy were in much deeper than 5K in credit card debt, a car loan and student loans. My next door neighbor had $50K in medical bills and another $50K in credit card debt when she had breast cancer and her husband was dying of liver failure.

A friend of mine's son was hit by a car and ended up in the hospital that was 100 miles from her home for months. She wracked up thousands in credit card debt living in a hotel near the hospital for months. The auto insurance company of the driver and her own health insurance provider were in court for years over who was going to have to pay the medical bills. In the interim, the hospital was coming after her, threatening to garnish her wages, etc. She filed and all that was wiped out.

I know a couple who had $80K in credit card debt and couldn't get divorced because they couldn't afford that debt if they lived separately so they filed bankruptcy first and then split up.

[Kevin]

It's a fresh start. If you're looking at debts you can't pay back or you can't even make the minimum payments, bankruptcy stops the actions of all of your creditors in their tracks, bankrupticies, lawsuits, etc., then either restructures your debt so that it's manageable, (there's a formula for it) or if you qualify for Chapter 7, your debt is simply erased.

With credit card debt of $5K, you're better off working something out with your credit card company to get that paid off. Car loan? Sell the car or let the car go back. Better than bankruptcy in most cases.

I would only recommend bankruptcy if your debt situation is just hopeless in the long term. I'd also check out the Dave Ramsey route--a bit simplistic, but it works for a lot of folks.

As for student loans, they're not bankruptable absent pretty extreme circumstances.

[ASUADPi]

Thanks for answering my questions. Like I said, I kept hearing commercials and was wondering what the 'deal' was with it.

I know when I lost my job, unable to find a new one and had a 198K mortgage, I considered bankruptcy. Sometimes I think I should have gone that route instead I ended up with a foreclosure (but now the state of AZ is actually suing my mortgage company, so that is a whole other thread).

[Munchkin03]

Originally Posted by ASUADPi

Thanks for answering my questions. Like I said, I kept hearing commercials and was wondering what the 'deal' was with it.

I know when I lost my job, unable to find a new one and had a 198K mortgage, I considered bankruptcy. Sometimes I think I should have gone that route instead I ended up with a foreclosure (but now the state of AZ is actually suing my mortgage company, so that is a whole other thread).

The payments on a 5K CC bill would be manageable for most people, unless they're making minimum wage. The only people I know who have filed bankruptcy have done it either because their kids had amassed MAJOR medical bills or it was a financial reckoning as part of a divorce.

Depending on the state, you can keep your house in bankruptcy.

A bankruptcy AND a foreclosure on your credit record would be hard to overcome, at least until those 7 years were over.

[AGDee]

A foreclosure is less damaging to your credit record for a shorter period of time than a bankruptcy. Plus, there are a gazillion people with foreclosures now. I know a lot more people who have had foreclosures than bankruptcies.

[fascination]

Originally Posted by Kevin

I'd also check out the Dave Ramsey route--a bit simplistic, but it works for a lot of folks.

He gives good common sense advice, has a step-by-step plan, and encourages people to negotiate with creditors to settle bad debts for less than owed -- but ONLY IF you honestly can't pay what you owe. He never wants you to file bankruptcy unless yu are absolutely forced to do so, like if someone sued you and has attached your wages so badly that you can't buy bread. Dave hates debt, and he especially hates student loan debt.

FYI, some guy called in to his radio show the other day and said his wife has $160,000 in student load debt. He wanted to know how they can ever pay it back? Dave said, "Whoa! Who's the doctor?" The guy said it's all his new wife's debt -- $145,000 for a four-year journalism degree, but then she decided that she wanted to cut hair instead, so she went back to cosmetology school with $15,000 more student loan debt. I think he said they make about $60,000 between the two of them. The debt is government guaranteed, so I guess we taxpayers will eventually pay it back to the lender. Ridiculous.

[amanda6035]

co-sign the Dave Ramsey thing. We've been following his plan for 3 1/2 years and we recently took over teaching the FPU class at my church from the couple who was teaching it before.

I wish bankruptcy wasn't an option... too many people abuse it and don't learn their lesson. Even if you get a ton of medical debt for whatever reason, there are ways to talk to the hospitals and doctors to negotiate a way to get some of the balances waived, and a payment plan for the rest. Dave has described how to do this on his show many times.

[ellebud]

Please note: school loans are not forgiven in bankruptcy. As the wife of an attorney who does not advertise....I would be hesitant to use a firm the goes on television. Call your local bar association and ask for referrals.

Your credit rating will tank for a number of years. And yes...some people and/or institutions will try and set up a payment plan.

[Kevin]

Originally Posted by fascination

He gives good common sense advice, has a step-by-step plan, and encourages people to negotiate with creditors to settle bad debts for less than owed -- but ONLY IF you honestly can't pay what you owe. He never wants you to file bankruptcy unless yu are absolutely forced to do so, like if someone sued you and has attached your wages so badly that you can't buy bread. Dave hates debt, and he especially hates student loan debt.

FYI, some guy called in to his radio show the other day and said his wife has $160,000 in student load debt. He wanted to know how they can ever pay it back? Dave said, "Whoa! Who's the doctor?" The guy said it's all his new wife's debt -- $145,000 for a four-year journalism degree, but then she decided that she wanted to cut hair instead, so she went back to cosmetology school with $15,000 more student loan debt. I think he said they make about $60,000 between the two of them. The debt is government guaranteed, so I guess we taxpayers will eventually pay it back to the lender. Ridiculous.

I differ with Ramsey on that point and that's why I refer to his views as being overly simplistic. Debt should be an investment. Whether you're talking about leveraged buyouts or student loans for degrees which are going to allow you to earn a higher income, debt is not dumb.

I invested around $100K (student loans) in my J.D. I'm about 3 years out of school and have aggressively been working on that debt. I should have it paid off next year, and then will go to work on my home mortgage.

The $160K indvidual, *I think* would qualify for an income-sensitive repayment plan and could have her payments extended out 20 years. I want to say that after 20 years, the debts are forgiven assuming you haven't defaulted.

[Kevin]

Originally Posted by ellebud

Please note: school loans are not forgiven in bankruptcy. As the wife of an attorney who does not advertise....I would be hesitant to use a firm the goes on television.

Maybe for a Chapter 7, but that's about it.

Call your local bar association and ask for referrals.

This.

I wouldn't touch bankruptcy with a 10-foot pole. When they changed the Code in 2005, they made the attorney potentially responsible if the client lied in a bankruptcy petition or in any other item submitted to the Trustee or Court. No thanks.

[ellebud]

Forgot to add: We know bankruptcy attorneys, my husband has a different specialty.

[Cane94G8r97]

I am very proud to be a bankruptcy attorney. In the last 3 years alone I have helped a lot of people save their homes through the Chapter 13 bankruptcy. As for my Chapter 7 clients, there are many programs out there to rebuild credit. Many of my clients have qualified for a conventional mortgage 2 years after their their bankruptcy discharge. Does bankruptcy have its benefits... yes. Does bankruptcy have its negatives... yes. Is bankruptcy the right answer for everyone... no. I have had clients from all walks of life. I am not making a ton of money, because obviously my clients don't have a lot of money to pay for services... however, I go to sleep every night knowing that I at least helped one person start over.

[ellebud]

Dear Cane: If you thought that I was downgrading bankruptcy attorneys please forgive me. I truly am not in any way doing this. My point was that my husband doesn't do that (and I am not beating the bushes for more work for my husband) but we have a friend or two who do that and (what a surprise) when we get together the men talk business. So, in general: attorneys who advertise may not be your best bet. the bar association is an excellent referral service (at least here).

[chi-o_cat]

I can't believe nobody's posted this yet:

http://www.youtube.com/watch?v=hiCilTzhXrA