ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Questions About Getting out of Debt Through Bankruptcy

Updated on January 8, 2011

Common Bankrutcy Questions

  • Who will know? Bankruptcy is filed in public records. Not everyone checks public records. Your neighbors probably won't know unless you tell them. Future employers will be more likely to find out if they do a background check. It will also be on your credit record for at least 7 years, so anyone who checks your credit will also know.
  • Will I ever be able to get credit again? Absolutely. Once your bankruptcy is filed you will get more credit offers than ever. There are many companies that (for a little more interest and fees) are very happy to lend to people who have just gone bankrupt. They do this because you can't file for bankruptcy again for 7 years, so they feel it's a good investment (for them). You can rebuild your credit by paying any new credit accounts on time. Contrary to popular opinion, your credit rating will also go up if you don't use credit after your bankruptcy. As the years pass, your bankruptcy will have less effect on your credit score. No new credit accounts will give you a better credit score after bankruptcy than a spotty payment history.
  • Will my creditors stop harassing me? Yes. They are required by law to quit calling you once you file for bankruptcy. You will have a "meeting with creditors" where they can attend and tell the judge why their account should not be discharged. Once you notify them that you are in bankruptcy any other phone calls or collection attempts should stop.
  • How will this affect my spouse/children? In common law states your spouse may become responsible for debts discharged in your bankruptcy. Your bankruptcy is personal. It will not involve other members of your family unless they have co-signed for your debts.
  • How much does it cost to file bankruptcy?Filing fees will vary from state to state, but run about $300. A bankruptcy lawyer will cost about $1000. Most people find that a lawyer can save them more than $1000 during a bankruptcy because they understand the law and what can be exempted from the filing. (For example, you do not have to lose your home in a bankruptcy. A lawyer can help make sure you don't.)

 

Mistakes to Avoid in Bankruptcy

Types of Bankruptcy

Chapter 7 Bankruptcy

This is the kind of bankruptcy most people think about. It discharges your debts and gives you a fresh start.

A chapter 7 bankruptcy is not easy. You will be required to give up any cash on hand, sell any assets of any real value, usually with the exception of your house. In general, anything that is worth more than you owe on it may be sold to help pay for your debts.

The court will then take the amount of money from this liquidation and distribute it to your creditors. This payment by the court discharges the debt and they can no longer try to collect any payments, interest, fees, or penalties from you.

Chapter 13 Bankruptcy

Less well-known, a chapter 13 bankruptcy does not discharge your debts. It is more like a loan consolidation or loan modification that is overseen by the court. A reasonable payment schedule is set up and you will be expected to make payments on time (3-5 years) until your debt is repaid.

Some people choose chapter 13 because they have assets they don't want to lose during bankruptcy. A new car would be an example of an asset that would likely be lost in a chapter 7 bankruptcy.

Other people are not eligible for a chapter 7 bankruptcy because they have a steady, reliable income that gives them enough extra money to make some reasonable payments on their debts.

What to Expect in Bankruptcy Hearings

Why Do People File Bankruptcy?

The top reasons that people file for bankruptcy are often situations that are out of their control.

MEDICAL BILLS: One of the most common causes of bankruptcy are high medical bills. These usually follow some kind of accident, or getting diagnosed with a serious illness. Sometimes these medical problems are compounded by the inability to continue working.

UNEMPLOYMENT: Most financial experts recommend saving enough money to get by for about 3 months. Even responsible people who are able to follow this advice can find themselves bankrupt after extended unemployment of 6-12 months.

DIVORCE: When people get divorced they are often making a change from living on 2 incomes to just one. There are cases where one spouse will get to keep an asset, while the other spouse gets to keep the payment book. Whatever the specific details are, life after divorce can create more expenses than income and for some people bankruptcy is the only option to find relief.

I hope you can see that these are not bad people. Most people have serious life changes that are all or at least partially out of their control. These changes in income and expenses create an imbalance that they cannot fix without bankruptcy.

Most people in bankruptcy have not gone out and charged up their credit cards with the idea that they could just declare bankruptcy and not have to pay back their debts. Most have been living on credit that they thought they could afford to repay... until the unexpected happens.

 

Source
Hub 4 of 30...
Hub 4 of 30... | Source

Why Sholudn't I File Bankruptcy?

First of all, if you still have valuable assets, you will lose them. Consider whether you have anything that you don't want to part with. Your car? Your grandmother's jewelry? Investment property?

For people who are not truly destitute, bankruptcy can be very painful as any asset of value may be liquidated by the court.

Bankruptcy is the worst thing you can have on your credit report in terms of lowering your credit score. It's not impossible to recover and have a better credit score than before your bankruptcy... after 3-5 years.

If you are considering buying something on credit (especially a house) then declaring bankruptcy will probably force you to postpone your plan for a few years while you get your finances in order.

Bankruptcy will follow you the rest of your life. Even after your bankruptcy has dropped off your credit report (about 7-10 years in most cases) you may be asked by potential employers or lenders if you have ever filed bankruptcy. Lying would be considered fraud.

People will judge you, sometimes unfairly, for having "taken the easy way out" of your debts. This may include your family and friends.

Bankruptcy is not a step to be taken lightly.

Bankruptcy Exemptions

Some of your bills may not be eligible for bankruptcy. Some things your bankruptcy won't discharge include:

  • Student Loans (*unless you can prove undue hardship*)
  • Taxes (or other money you may owe the government)
  • Child support and alimony
  • Any credit on "luxury" purchases in the last 90 days. (A TV is a luxury, milk and bread are not)
  • Money owed for an accident settlement involving DUI.

There are a few others as well. This is one of the reasons you would want to consult with an attorney before filing bankruptcy. Most bankruptcy attorneys wil give you a free initial consultation that will uncover any non-dischargeable debts you may have.

True Story of a Couple Who Filed Bankruptcy

Comments

    0 of 8192 characters used
    Post Comment

    • Simone Smith profile image

      Simone Haruko Smith 7 years ago from San Francisco

      Thanks for answering these questions!

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: "https://hubpages.com/privacy-policy#gdpr"

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)