Has anyone ever filed for bankruptcy?

[juan ruiz]

Besides the damage to your credit, what are the cons and pro’s of such of solution?

I ask because a good friend is in the hole with the mortgage and credit cards and it seems that’s the only solution.

[Porsche-O-Phile]

I have not (and I'm not a lawyer) but here's my understanding:

1. Legislation passed about 5 years ago makes "charge offs" (Chapter 7) for individuals much harder to do now. More likely you'll be assigned a "Chapter 13" which is a restructuring agreement. Your creditors still get paid, but they get paid on the basis of a new timetable with the court as the arbiter.

2. With mortgages, you will likely be able to write off a FIRST mortgage (your state's laws may vary) but the lender can (and should) send a 1099 for the loss. You will be liable for taxes on that amount, which can be substantial. Depending on your state's laws you will likely NOT be able to discharge a second (or subsequent) mortgage or any HELOCs.

3. Yes, your credit will take a huge hit. You will be essentially living sans credit for 3-4 years. After that you can begin to rebuild in a meaningful way. Typically bankruptcy filings remain on your credit bureau reports for 10 years BUT under certain circumstances a "full history" credit report can be pulled that looks all the way back to the day you were born and creditors will see it for long after.

I recommend talking to a lawyer. There's also a wealth of information on creditboards.org. Best of luck to you.

[mjshira]

I would have agree with the above. It seems to me that unless you can't feed yourself, you shoud avoid this action. I'd suggest trying to restructure with creditors first.

[juan ruiz]

Thanks for the info !! I will send him that link

[daepp]

As much as I would hate to report this, Debt Forgiveness, AFAIK, is no longer 1099 reportable nor taxable.

So much for being responsible.......

[Rick Lee]

I have a good friend going through this right now. He said something about having your creditors take a real close look at your credit card usage over the last 90 days to see if you bought anything of value once you decided you were gonna file. He said he's spent about $1200 in bars in that time and expects to be on the hook for it. Did I mention he's bad with money?

The killer with BK is that a lot of folks wait until they've hit rock bottom before doing it. And let's face it, when you get a BK on your credit report, no one really cares that you tried to stick it out for 6-12 mos. before finally pulling the trigger. So, as irresponnsible as it sounds, if you really think BK is where you're gonna end up, you might as well do it before you burn through all your cash, savings, 401k, etc. trying to keep your head above water. My friend above tried very, very, almost too hard to keep his head above water. When he sold his primary residence so he could move back into the cheaper TH he had been renting out, he took out a $60k personal loan to avoid a short sale. His lawyer is now telling him that was a stupid thing to do. Not only did the payments sting him for a year, but a short sale would certainly be no worse than the BK he's now getting on his credit report.

[dd74]

Originally Posted by Rick Lee

...if you really think BK is where you're gonna end up, you might as well do it before you burn through all your cash, savings, 401k, etc. trying to keep your head above water.

In the slight chance someone has these equities before they claim BK, won't the creditors claim them?

[sammyg2]

It he were my friend, I'd tell him to be a man and deal with his commitments and promises, not run and hide from his responsibilities like a coward.
That may come across kind of harsh though ......

[Rick Lee]

Originally Posted by dd74

In the slight chance someone has these equities before they claim BK, won't the creditors claim them?

AFAIK, your 401k is untouchable for any reason and you're allowed to keep one car per driver up to a value of around $10-$12k. If it's worth more, you have to sell it, buy something within the exemption limit and use the difference to pay down debt. I think your primary home is also untouchable, but the lender can foreclose if you can't pay them.

Sammy, if you can't pay, you can't pay. I'm not saying my friend's problems aren't largely of his own doing. But as I understand it, most BK's are due to medical bills, even those of folks with insurance. Being on the hook for 20% of a major illness can quickly crush most people financially. And if you're upside down on your house, on the hook for the loan you got to avoid a short sale on your other house, unemployed and have burned through every dime of savings and retirement $$, what are you supposed to do? Delivering pizzas might show effort and good faith, but it ain't gonna make a dent in the problem.

[juan ruiz]

Originally Posted by sammyg2

It he were my friend, I'd tell him to be a man and deal with his commitments and promises, not run and hide from his responsibilities like a coward.
That may come across kind of harsh though ......

Just out of curiosity, why do they have "bankruptcy" to begin with

[ramonesfreak]

the pros should be obvious.

the cons can be many, and complex. ive have not filed. i used to practice bankruptcy law before the laws changed. your friend needs to sit down with someone and discuss. the consultation should be free

As far as one's credit. It will not be as negative as you might think. Once your debts are discharged in bankruptcy, you are a far better credit risk. Its surprising to many how quickly the credit card companies start calling once the bankruptcy is complete...scarry!

The biggest con is that you are at risk for losing your assests. House, personal possessions if valuable enough, cash....the bankruptcy trustee, depending on how aggresive they are, can come to you your house and inspect your property.... oh, nice gun collection!...gone! 911 ...gone!

i hope you dont treat your friend the way sammy would. some people have terrible things happen to them and keeping up with monthly payments becomes impossible no matter how much effort the person puts in. ive filed thousands of bankruptcies for people and the vast majority, 95%, felt absolutely terrible, ashamed, helpless and hopeless and had obviously struggled for a long time to avoid it and the majority, if not about half of the people, had serious health issues - heart attack, motorcycle accidents, cancer....

[Dueller]

Originally Posted by juan ruiz

Just out of curiosity, why do they have "bankruptcy" to begin with

Because we don't have debtors' prisons.

A few observations/comments.

Should be an absolute last resort. Damaging your credit is generally not a consideration because once you get to the point of bankruptcy its already pretty much destroyed.

Bankruptcy reform laws make it increasingly difficult to file chapter 7 (liquidation; i.e., turn over your assets and walk away) especially if your income is ablove your state's median income. Likewise chapter 13 is more difficult (reorganization resstructuring your debt and setting up a payment plan allowing you to keep some assets and paying part, if not all your debt back under the oversight of a trustee).

You can only file chapter 7 once every 7 years; you can have numerous successive 13's.

Preferential payments/transactions: Anything done within 1 year with an insider; i.e, family member, business associate can be "undone"; 90 days for a non-insider; i.e. credit card companies but purchase of "luxury" items before bankruptcy will be heavily scrutinized.

State laws control what is exempt from seizure by your creditors...e.g., Florida allows you to exempt your primary residence...most states do not.

Generally retirement accounts are protected from creditors; ditto life insurance with cash values; ditto tools of your trade.

federal tax debt is generally not dischargeable; ditto student loans; ditto alimony/child support.

Generally you will not be able to keep your home without reaffirming the mortgage debt. although there are some provisions to "cram down" mortgage balance to the value of the home.

Bankruptcy should be avoided at all costs.

Many prospective employers will not hire you if you have a bankruptcy.

Once had a client showe up at a meeting of creditors wearing a Rolex...they took it from him on the spot. I do not fool with bankruptcy any more since the reform legislation.

[Shaun @ Tru6]

Originally Posted by juan ruiz

Just out of curiosity, why do they have "bankruptcy" to begin with

A good friend of mine is a bankruptcy attorney. Bankruptcy is a critical part of capitalism and the free market economy. It should only be available to people who take a chance and start a bona fide business and end up failing. People who ring up a ton of debt buying junk, living large, they should remain on the hook and made accountable for their debts.

[Rot 911]

Juan, Dueller wrote the most succinct info on a BK. Nothing I can really add to it and I have even done a few BK's for clients when I was in private practice.

[NICKG]

we were faced with cancer...we had no choice. what was really crappy was that they would come to us and say "your neice needs this platlet shot, it is 10000, without it she might die"...we did it. But right next door was a kid from some 3rd worlds place with all the toys..cable, video games and private room,m phone, everything you can think of donated, while we were in a room with 3 others..no tv, phone and no frills because we could not afford it. We were forced into bankrupcy(sp)...
would I do it again? 100% yes..my neice is a happy healthy 20 y/o..money is fleeting and after 8 years, I only occasionally get declined for credit(we have 720+ fico) own a home, and live as good or better than we did 10 years ago...I have no regrets doing it..her hospital bills alone were nearly 1 million..then the Docs...none of whom got a dime from us, billed like 2.5 million to us while all along donating their services to the "poor" kid next door (scumbags...)
Sadly this has only fueled my disdain and mistrust of dr's in general

[jyl]

Not a BK lawyer and no experience w/ BK - but possibility that BK laws will be changed soon to permit mortgages to be crammed down in BK. Might consult w/ BK lawyer now, but think about timing of any filing.

[Rick Lee]

Originally Posted by jyl

Not a BK lawyer and no experience w/ BK - but possibility that BK laws will be changed soon to permit mortgages to be crammed down in BK. Might consult w/ BK lawyer now, but think about timing of any filing.

Pretty soon FHA will be the only mortgage left any of us will be able to get.

[sammyg2]

Originally Posted by juan ruiz

Just out of curiosity, why do they have "bankruptcy" to begin with

Because people are screw-ups and this is a form of welfare, that's why. It is something that is out of hand and should have lever been allowed to grow into the moster it is today. it should have never been allowed to change from the "temporary time out" it was designed to be. it should be a way of saying, hold on and give me a little time to get back on my feet so I can make all my payments. A few months maybe, that's it.
It should not be as get out of jail free card. it should be something to help people make their payments, not something to help people walk away from their payments.

There are times when people get in financial trouble through no fault of their own. A catastrophic illness that results in unimaginable debt could be one, but IMO that is RARE. I don't believe that most people who file for BK do it because of enormous medical bills. I'd like to see some facts on that.

I suggest that the majority of people who file BK are doing it for one of two reasons:
either they were foolish and made some really, really dumb decisions and can't dig their way out of the mess that THEY created, or they are simply taking the easy way out.
Either way it is sleazy and irresponsible to stick everyone else with your screw-ups.
The financial institutions shouldn't be punished, the rest of the people who are still paying their bills shouldn't be punished, the people who screwed up should be punished. It's too easy to walk away from commitments. too easy to go back on your word, too easy to default on a legal binding contract.

Anyone who thinks it's perfectly OK to file for BK wasn't raised very well IMO. If someone thinks there is nothing wrong with filing BK except for the hit to their credit score, they have moral issues. BK means you lied. You went back on your word. you broke a promise. That should bother reasonable people. That should be something that most people don't want to do because of personal pride and self-esteem. It should be regarded as a last resort, something you do when you absolutely positively have no other option at all. It is not a decision anyone should make, it's something that eventually happens despite their very best efforts, something they should fight against with every ounce of strength.
It is something that should be embarrasing, something to be ashamed of in most cases. It is not something that should be regarded as "oh that's OK, no big deal".
When we treat it like that we encourage other screw-ups to make the same mistakes.
I understand that some people are just unlucky. I feel compassion for them but only to a point. I've found that the harder I work and the more responsible I act the luckier I get. I know people who are very unlucky and bad things happen to them every day, just ask them. But in most cases their "bad luck" was brought upon themselves through bad decisions or taking the easy way out of a situation instead of the right way.

[Christien]

Originally Posted by juan ruiz

Just out of curiosity, why do they have "bankruptcy" to begin with

Originally Posted by NICKG

we were faced with cancer...we had no choice. what was really crappy was that they would come to us and say "your neice needs this platlet shot, it is 10000, without it she might die"...we did it. But right next door was a kid from some 3rd worlds place with all the toys..cable, video games and private room,m phone, everything you can think of donated, while we were in a room with 3 others..no tv, phone and no frills because we could not afford it. We were forced into bankrupcy(sp)...
would I do it again? 100% yes..my neice is a happy healthy 20 y/o..money is fleeting and after 8 years, I only occasionally get declined for credit(we have 720+ fico) own a home, and live as good or better than we did 10 years ago...I have no regrets doing it..her hospital bills alone were nearly 1 million..then the Docs...none of whom got a dime from us, billed like 2.5 million to us while all along donating their services to the "poor" kid next door (scumbags...)
Sadly this has only fueled my disdain and mistrust of dr's in general

That should answer your question. Nick, that's really a sad story. I think this is a good example of where BR is a win-win, or best case scenario in a bad situation.

I read bankruptcy reports often enough, because I work in sub-sub-sub-prime car financing. Usually at least a couple per year. Now granted, things in Canada are MUCH different because nobody gets stuck with medical bills. My personal take on it is that anyone can get in over their heads with debt, no doubt fuelled by their own lack of responsibility, but still, everyone makes mistakes and should be given a 2nd chance. Ok, first bankruptcy. Second BR means you didn't learn your lesson and should be shown no mercy. You now work for your creditors, end of story. Nothing is written off, all debts are to be repaid in an order and amounts decided by a judge. You miss a payment, you go to jail. You don't show up for work without a dr's note, jail. Etc etc. Too many people know how to play the system and just use BR to write off bad debts. (FWIW, we will extend credit to someone with a BR on their record, but rarely, if ever, with 2.)

It's easy to get credit (from company's like mine) so who cares about your credit report. Nothing frustrates me more than seeing a BR proposal that shows something like $2K assets and $20K liabilities - that's not a serious debt, that's just trying to get out of paying for things.

I reviewed one proposal a year or 2 ago where they were trying to w/o their car loan, even though the proposal showed a household surplus of $250/month, and their payments were $240 and change. I called the trustee and asked him to explain. He said it was a projection of monthly finances and that money might not be there. I walked him through it and said these are all reasonable expenses and income, there's no reason for that surplus to not be there. He said it might not be, but never could offer a valid reason why not - i.e. the debtor just didn't want to pay. I've come to believe that some BR trustees are the scum of the earth.

[ramonesfreak]

[QUOTE=sammyg2;4198673

I don't believe that most people who file for BK do it because of enormous medical bills. I'd like to see some facts on that.
[/QUOTE]

its not necessarily because of medical bills.

its often because of medical problems which prevent a person from 1) working, 2) continuing to work in a job which pays adequately

ALL of the work I do now, involves people who can either no longer work because of illness or injury, or, have had to switch jobs because of an injury or illness which now pays less. Thousands and thousands of people.....

It takes the typical Social Security Disability applicant TWO years to complete the process.....in the meantime, if no other policies of insurance cover them for disability.....how do they pay their bills?

We are talking about thousands of people here.....

and then, there are those that because of the economy, are terminated from their jobs, unexpectedly find themselves in a very damaging divorce, have their business, homes and possessions destroyed by natural disasters like hurricaines....

there are a great many ligitimate and honorable reasons for BK relief