6/12/2012 4:02 PM ET|
How to survive bankruptcy
Filing for Chapter 7 or Chapter 13 is a hard blow for most people, but it can be the first step toward a more financially stable future.
To some, having to declare bankruptcy seems to constitute the ultimate failure. For others, it is a brand-new start and an opportunity to manage their financial life responsibly in the future. Bankruptcy is not something to be entered into lightly, and it has major impacts on your credit score and on your ability to obtain credit in the future. It is never the end of the world, however. You can survive bankruptcy and come out on the other side more financially solid.
Of course, it's best to avoid bankruptcy in the first place, if possible. If you have a financial adviser or lawyer who is recommending that you file, get a second and third opinion. In many cases, there are ways to avoid bankruptcy and work out your current debts. Some advisers are more willing than others to help you explore those options. In some situations, however, declaring bankruptcy is the only path forward, and for these people, it is the first step to a new financial life.
Types of bankruptcy protection
There are two major types of personal bankruptcy filings in the United States: Chapter 7 and Chapter 13. Chapter 7 is used most often by people who have few assets and no ability to work out a repayment plan on their existing debt. Most assets are turned over and sold to repay debts, the debts are then wiped out, and the debtor emerges from the process quickly. Chapter 13 allows the debtor to keep most of his or her assets and forces lenders to work with the courts to come up with a modified repayment plan. This type of bankruptcy filing is used when the debtor owns significant assets, such as a car and a house. These filers have ongoing sources of income and need most of their existing assets to continue to earn the income. A Chapter 13 process can last for years until the debts are paid off. While both types of bankruptcies last for 10 years on your credit report, a Chapter 7 filing can have a more detrimental effect on your credit score.
After emerging from a Chapter 7 filing or during a Chapter 13, the first goal is to begin to rebuild and repair your credit. Despite all of the fantastical claims by credit repair companies, there is no quick and easy way to boost your score. The credit hit your score has taken will make you ineligible for most forms of new debt. You may be able to obtain a secured credit card. This type of card requires you to put up a cash deposit and you have access to use up to the amount of the deposit. While this doesn't actually provide you with new credit, the benefit is that the company will report the activity on the card to the credit bureaus and you can begin to build a new credit history. It may take several years, however, before your score is high enough to apply for a car loan or mortgage. Actively monitoring your score and diligently managing your post-bankruptcy credit will slowly allow your score to rise.
Managing your credit post-bankruptcy
While filing for bankruptcy offers you a new start in your financial life, avoiding ending up in the same position in the future can take some work. Managing every dollar that comes in and goes out the door is important to ensure that you don't drive up your debts going forward. Many people who declare bankruptcy had to do so because of factors beyond their control -- an irresponsible spouse, unexpected medical bills, etc. -- but for many others, debts simply crept higher and higher without notice. A simple budgeting program, such as Quicken, can help you know how much money you spend and earn every month, as well as your total assets and debts.
The bottom line
Filing for personal bankruptcy is the last resort for those who cannot carry their current debt load, but it often comes with further financial damage and emotional strain. Understanding the reasons for your crushing financial picture and slowly rebuilding your credit history are critical steps in surviving the process.
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They modify the credit card laws in 2008. So companies jack up the interest from 12% to 25%.
and the minimum payment up by 25%. So when people hit a bump in the road, they have to do something. The average person lost 40% of their net worth from 2008 to 2012 but the banks are still being bailed out....time for the French revolution to happen again
my husband and I considered bankruptcy once as a last resort because of our credit card debt. we didnt buy toys. my husband took a paycut to keep his job (but has a new position now and got it back) so i had to buy groceries and such so guess how i paid for it. i have a good job but with daycare etc. it adds up
but my inlaws really advised against it because of its impact in the future. we were lucky enough they helped us out with some debt. you most likely can keep your house and cars but you absolutely cannot be late on any payment. I called my discover card to see what other payment plans I could do for my $3000 balance. they said the only thing they could offer me was 2 payments of $1500! LOL what a joke! we make our mortgage on time every month and just keep moving on. day by day. i have spent too much time crying and worrying about tomorrow and it is not worth it!
Many people today are being forced into declaring bankruptcy. Divorce, job loss, and the poor economy are mostly to blame. Unfortunately, many Americans have a lot of misconceptions about bankruptcy. They see bankruptcy people as “losers”, “irresponsible” or “broke”. None of these are true. The new face of bankruptcy is changing. White collar, college educated, former corporate executives, teachers, lawyers, accountants, and even celebrities are the ones filing for bankruptcy now. Many of these Americans enjoyed prosperity, they were responsible with their debt until one day they lost their jobs, had a major illness, or they got divorced. Many of these people found that bankruptcy was the only way out for them. Post-bankruptcy, their lives have improved and they have rebuilt their credit. Rebuilding credit takes time, but it absolutely can be done in as little as 2 years.Visit http://www.thebankruptcyshop.com for more ways to rebuild your credit.
Tough choice fpr those with a sense o fmoral responsibility, but bad things sometimes happen to the best of people.
After much soul searching, did a 13 about 9 years ago, was one of best decisions have made over the years. Creditors ultimately got their dollars, instantly huge reduction of stress, within a year or two of filing had enough credit available to bridge between the more difficult and more flush cycles. By the time the history came off my credit report, was about done paying off a new car loan at decent rates, had bought and sold a home, never a late payment on anything, always paid off early. Today, own a very nice home w/fully paid for late model car and a new work truck, as many credit cards as need, good retirement savings and very close to zero credit card balance. If had not done the bankruptcy, would probably still have creditors hounding me to be paying interest on 10 year old debt with a credit rating in the cellar.
Bankruptcy is not the end of the world. My Chapter 13 was filed a little over 2 years ago, about the same time as my house was forclosed on. I won't get into details but it all stemmed from my wife losing her job.....moral here is be able to live on one income....but I digress.
My Chpt 13 payment isn't much more than what my car payments were...and I kept the cars. So the big hit was really my credit score. But with regular payments on the 13, and a couple secured credit cards (cant get "real" card yet), my credit score is back to where we were just able to get a mortgage for a 300k home. We close in November.
So we had to rent a place for a while...big deal. It was our poor planning that caused this situation so it was a small price to pay. The peace of mind knowing that we'll be debt free other than the house and the process of learning how to budget and live on less has been priceless.
Bottom line is if you're backed into a financial corner, don't think a bankruptcy is a death sentence. Its not the end of the world
This is pretty laughable advice. "you need to get a credit card and get some debt to build up your credit again...." What do you think caused the bankruptcy? Look at preventing bankruptcy by living within your means and properly insuring yourself. Catastrophies happen but if you don't have 30 years of income commited now, you can avoid a pretty rough storm. Also, asking a bankruptcy attorney if you need to file is like asking a shoe salesman if I need new shoes.
I saw a guy reaffirm a $11,000 jet ski and it was the only thing that pushed him into bankruptcy. So, he didn't even get relief from it. Maybe, he should consider finding a little more than $10/hour before he buys a jet ski. We all deserve whatever little thing we want.
My Aunt and Uncle filed bankruptcy not once, but twice. They did not change their spending habits after they filed. They never did buy big expensive toys, but they did spend beyond their means and did not cut back on anything - smoking, drinking, going out to dinner, getting nails done, high cost phone plans and the list goes on. If you spend within your means, without an emergency you will be fine, otherwise the short fall month after money will catch up to you.
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