Restarting Your Financial Life
Most people are afraid of bankruptcy. They believe it is for dead-beats; they believe it is shameful or an admission of failure; they believe it will destroy their existing credit rating and that they’ll never get credit again; they believe they will lose their home. None of these myths are true.
The overwhelming majority of people who file for bankruptcy are decent, hard-working folks who never intended to be in financial distress. They have made valiant efforts to repay their debt. But, usually for reasons beyond their control, the debt has snowballed and is no longer manageable. The most common ways people find themselves in this situation are:
- Loss of income. Your debt payments were manageable when you earned $X, but now, because your income has been reduced, you simply do not have the same amount of money available to pay what you owe. The loss of income is not your fault. It could be because you were laid off, or lost overtime. It could be the result of the death of or separation from a spouse. Maybe it’s from retirement. These types of situations are beyond your control, but they can be devastating to your ability to repay your debt.
- Medical bills. Everything was fine until you or a family member became ill. Even people with health insurance find that they are not covered for 100 percent of their medical costs. Over time these costs often increase; a prescription medication may be only $50 per month, but over the course of a year that means you’ve expended $600 just for that one medication. Because you must pay for these expenses if you want to stay healthy, you now have less money available for the rest of your nonmedical bills. And, if you have serious health problems, they may also lead to loss of income, which makes it even more difficult to pay your bills.
- Increased expenses. You had a budget and you stuck to it. But then things happened that were beyond your control. For example, your adjustable rate mortgage increased. Or your paid-for car broke down and you had to buy a new one that requires monthly payments for several years. It could be that your real estate taxes increased, or your adult children returned home and you now have to pay for their food, utility use, etc. You did not go out and run up your credit cards and these new expenses were not incurred as a ploy to defeat your creditors. But you have the new expenses, and so you now have less money to pay your debts.
Busting: The Dead-Beat Myth
If you find yourself in any of these or similar situations, then you know that you are not a dead-beat and you have nothing to be ashamed of. You have tried to repay your debt; you have probably exhausted your savings and may have even dipped into your retirement accounts in an effort to ‘do the right thing.’ The economic realities of the 21st century are harsh and don’t appear to be improving. Bankruptcy* may be a way for you to get your financial life back in order and make a clean start.
When most people think of bankruptcy they envision a Chapter 7 bankruptcy where all unsecured debt is forgiven. However, there is another type of bankruptcy, a Chapter 13 filing where, if an individual is able, at least part of the unsecured debt can be repaid. Some people prefer to file a Chapter 13 case because they are making that commitment toward repaying the portion of their debt that they can afford to repay.
The beauty of a Chapter 13 case is that the amount of repayment of the unsecured debt is based upon what the amount of money you actually have available to repay, and not based on the demands of the creditors. Chapter 13 puts YOU in control of the repayment of your debt; making it possible to pay what you’re able to, and then have the unpaid portion of the unsecured debt discharged.
Busting: The Shame And Failure Myth
In the 1500s, bankruptcy was a crime in England, punishable by imprisonment and even death. But the United States has never, ever viewed debtors in such a harsh light. In fact, the United States Constitution (Article 1, Section 8, Clause 4) specifically permits Congress to enact “uniform laws on the subject of bankruptcies throughout the United States.” The stated purpose of the Bankruptcy Code is to offer a “fresh start” from financial burdens.
As pointed out above, most people do not purposefully incur debt with no intention of repaying. Everyone tries to repay. But situations arise over which they have little or no control, and they become stuck in a financial free-fall from which there appears to be no escape.
There is an escape from the free-fall, one that is provided by the U.S. Constitution and Congress: bankruptcy. It is meant to give individuals an opportunity to regroup and start again. There is no shame in utilizing the laws of the United States that have been enacted to assist you in difficult financial times. Especially now, in a recession that is ongoing, the Bankruptcy Code can be the only safe and responsible way to manage your financial burden.
Busting: The Credit Myths
Do not worry about bankruptcy giving you a bad credit score. Frankly, your credit score is already low or you would not be considering this option. If your idea is to file for bankruptcy and then go out and get five new credit cards, my advice to you is to find a different bankruptcy lawyer; I don’t want your case.
But, if you agree that you do not need to borrow more money, and that what you need to do is get rid of the debt you have and then start over while making an honest effort to live within the income and reasonable expenses that you have, then you should contact my office.
And, if you absolutely must obtain a new loan or debt, here’s one of the bankruptcy secrets: After a bankruptcy is successfully completed, creditors are often MORE willing to extend you new credit because you don’t have a lot of other debt to repay. The interest rates may be higher than for the average person, but you were already receiving high interest rates before your declared bankruptcy. The creditors know that because your old debt has been wiped out, you are now probably able to repay the new loan. Once you repay a debt, then your credit rating gets better, your interest rates go down, and before you know it, you are on your way to rehabilitating your credit score.
Busting: The Losing Home Myth
Many people can file for bankruptcy and keep their house. When you consult with a bankruptcy attorney, make sure you discuss the current value of your home, the total amount you owe for the house, and your monthly payments. If you are current on your monthly payment and do not have a lot of equity in the house, the chances are very good that you will be able to keep it. Even if you do have substantial equity, you may be able to protect that equity and keep your house by filing a Chapter 13 bankruptcy.
If you consult with me, I will give you an honest assessment of whether you will be able to keep your house. Most people can. If filing for bankruptcy means you will lose the house, then we’ll think of another strategy for managing your debt. I have NEVER filed a bankruptcy for a client that results in them losing an asset they want to keep, and I never will.
The Fresh Start
There are many ways to manage unpaid bills. Sometimes you just need to prioritize your payments; sometimes you need a new budgeting strategy. Maybe there’s just one particular debt that needs adjusted or resolved, and then the rest become manageable. The list of possible ways to resolve debt issues is almost infinite.
My approach is to find the best way to resolve YOUR debt problems. That approach will be tailored to fit your individual needs, taking into consideration factors like your income, family size, house-hold expenses and long-term financial goals. If bankruptcy is a possible solution to your financial problems, we’ll discuss it and determine if it’s a solution you want to pursue. If bankruptcy is not the answer for you, we’ll find the answer that is. My goal is to help you find solutions. The fresh start, bankruptcy, is a powerful tool in dealing with debt. But we’ll only use it if it’s right for you. Contact me today to arrange for a financial consultation.
In England, the first official laws concerning bankruptcy were passed in 1542, under Henry VIII. At that time, a bankrupt individual was considered a criminal and, as such, subject to criminal punishment ranging from incarceration in debtors’ prison all the way to the extreme sentence of death. Bankruptcy in the United States is a matter placed under Federal jurisdiction by the United States Constitution (in Article 1, Section 8, Clause 4), which allows Congress to enact “uniform laws on the subject of bankruptcies throughout the United States.” The Congress has enacted statute law governing bankruptcy, primarily in the form of the Bankruptcy Code, located at Title 11 of the United States Code. In the United States, early federal bankruptcy laws were temporary responses to bad economic conditions. The first official bankruptcy law was enacted in 1800 in response to land speculation. It was repealed in 1803. Similarly, in 1841, in response to the panic of 1837, a second bankruptcy law was passed. The economic upheaval of the Great Depression yielded additional bankruptcy legislation, in particular the Bankruptcy Act of 1933 and the Bankruptcy Act of 1934. In a 1934 U.S. Supreme Court decision, the Court reveals that the primary goal of bankruptcy laws was to offer debtors a “fresh start” from financial burdens.
*I practice law primarily in the areas of domestic relations and consumer debt. My law office is designated as a debt relief agency that helps people file for relief under the Bankruptcy Code.