Survivng a Bankruptcy Filing

Filing for bankruptcy these days has a significant consolation: You’re not in it alone. This is one of the main things to keep in mind in order to survive a filing. Here is a little of what happens in bankruptcy, and a bit about how to survive it.

There are thousands of people across the U.S. who are in the same situation – basically, at the end of their rope with creditors calling them at home, at work, any time of day or evening, and harassing them. They may be contacting people on weekends – even on Sundays. They may be contacting family members and friends, or the neighbors. They can be making life rough. They get paid according to how much they can collect, so many collectors will say whatever they think they can get away with. While their “deals” and “offers” of a smaller payment than what is owed, for example, on a long-past-due credit card may sound good on the surface, they actually want the smaller amount, which may still be huge, in one, two, or three large payments – any of which are out of the question. Obviously, the debtor cannot negotiate further, and the debt stands. If the company is reputable, they will honor their obligation to cease contact once they get a bankruptcy attorney’s name and contact number. If they continue to contact once they are officially notified of a bankruptcy, they can be in serious trouble. Usually, if a debtor tells a collector that bankruptcy proceedings are about to begin, the creditor will back off and only call occasionally until they get an official notification.

There are so many people filing bankruptcy in the U.S. right now that creditors do not even send representatives to bankruptcy court – a hearing that must be held prior to actually filing. One well-known mortgage company’s representative explains, “We have so many cases, we can’t possibly send our representatives – we simply don’t have enough people to send out.” This is good to know, since it takes a lot of nervousness out of the pre-bankruptcy court hearing. While bankruptcy wipes out all of your unsecured debt, meaning all that is not secured by collateral such as your property or vehicles, (most taxes and student loans cannot be discharged,) and you have opted to retain your property, you will still be left with your secured debts, but those debts may now be easier to handle.

The pre-bankruptcy hearing, or “creditors’ hearing,” gives the trustee who is hearing the case enough information to either recommend relief for the client through the bankruptcy code, or dismiss the case if anything is out of order. You and your attorney must be well-prepared in order to avoid this unfortunate outcome.

Bankruptcy laws have changed in recent years, making the ordeal much more complicated and involved for the debtor than it used to be. Now the client gathers and verifies all information and presents it to a bankruptcy attorney. The attorney requests necessary documents and statements including pay stubs and federal tax returns for the past several years, as well as inventory sheets listing your assets. It is determined then, which form of bankruptcy you are qualified for. You may qualify for a Chapter 7, which is a liquidation and wipes out unsecured debt altogether, or a Chapter 13, which is a reorganization of existing debt that is prioritized and paid back over a period of 3 to 5 years. Wage earners usually go this route if they can, since it signifies that the debtor is willing to pay something to the creditor, even a smaller amount than is owed.

Even in a Chapter 7, unless you have a large amount of assets, you will probably not lose property – many items are exempt from seizure. This will also depend on how much income you have, the value of your inventoried assets, the amount of debt you report, and what is found on your credit report. You must list every creditor you have, no matter if you currently owe them money or not. All creditors will be sent notices once the case is filed.

It is a long, drawn-out process which is time-consuming and at times, irritating. It is listed in at least one regional newspaper when filed. There are also mandatory credit counseling classes you take through an agency such as Consumer Credit Counseling Services before the filing can take place. The only way to proceed with the filing is to present the certificate to the court, showing you have indeed completed the course. There is a continuation of the course, post-bankruptcy, as well, and debtors receive a certificate of completion.

Once the bankruptcy is discharged, which is much faster in a Chapter 7, none of the creditors who held unsecured debt can ever come after you for that debt again. It does stay on your credit report for 10 years. Chapter 13 will stay on the report for 7 to 10 years.

There is good news out of all of this. While it may seem like a catastrophic event in ones life, and something you would have wished to avoid, it is not the end of the world. If you think about the many leading names in business who have filed for bankruptcy protection in recent years – even Donald Trump – you can imagine you are in good company. In many cases, credit will be easier to get after a bankruptcy because creditors realize you no longer have extraordinary amounts of debt hanging over your head.

One very important thing you can do before, during, and after bankruptcy, is hold your head up high, knowing you’ve done a financially responsible thing. Your bills will now be manageable. You will have learned a lot during the credit counseling sessions about managing your money, the pitfalls of credit and the importance of using it wisely, and you will have set up a spending plan so that things never get out of control again. You will have set up a savings account, as well, for any emergencies that come along – and they will. You will not want to have to depend on credit again, but you will receive offers. Choose ONE credit card and keep it for emergencies. Read all the fine print before you accept an offer of credit, paying special attention to credit limits, rate of interest, introductory periods, rate after the introductory period, annual fees, late fees, over-limit fees, credit bureau reporting policies, and opportunities to rebuild your credit score. Don’t jump at the first offer that comes along. Wait for the best and fairest offer. Decide carefully, but know that there will be times when you really do need to produce a valid credit card.

Above all, and this is the best advice most people in this situation could receive, try your very best to separate your emotional responses (cast them aside) from the reality of having made a wise business decision. That is all it has been – a necessary business decision. With this in mind from the beginning, you will stop worrying about what anyone thinks about your financial affairs. There is life after bankruptcy – and in many ways, a better one.