Bankruptcy - the End of the World?
Not long ago, the possibility of having to file bankruptcy often brought about panic, despair, embarrassment and shame from those facing severe financial crisis. Now, it's one of the first options considered by the millions of Americans who have leveraged themselves to the hilt, purchased homes through predatory lenders or succumbed to the quicksand of credit card companies.
But who can blame them? In this new culture of get-it-now-worry-about-it-later advertising and shameless unaccountability displayed by everyone from politicians to overpaid pro athletes, society no longer has a reference to anything resembling fiscal responsibility. The credit card industry as a whole continues to find new ways to prey on consumers, operating almost unchecked by Congress; "Pay Day" loan companies are charging upwards of 300% interest for cash advances and the mortgage industry is reeling from predatory lending practices. All the while, record numbers of bankruptcies and foreclosures are being filed and there is no relief in sight for consumers.
But is bankruptcy still the solemn march to financial death row it was once considered to be? Not exactly; now it's more of a "seven-to-ten" in a minimal security camp that allows conjugal visits. If you're an exemplary inmate, make friends with the guards and wash the warden's car and if you promise to never ever get in trouble again, you could be out in less then a year for good behavior.
How is this possible? If you are one of the millions of consumers facing financial lockdown, there are a few steps you can take to emerge from bankruptcy with your financial dignity intact.
Avoid "Bankruptcy Mills" - As more and more consumers turn to bankruptcy for relief, high-volume bankruptcy law firms and "petition specialists" are circling overhead waiting to feast. Much like personal injury attorneys, these vultures advertise constantly on television, radio, direct mail and even billboards. They also comb local foreclosure filings and credit bureau reports for potential clients. If you follow the old adage of "you get what you pay for", you'll be fine...these bozos are easy to avoid.
Pre-qualify your attorney: Make sure your lawyer is willing to meet with you in person and appear at any necessary proceedings. This may cost a little more, but it is in your best interest to have good representation in this complicated maze of debt reorganization. Bankruptcy mills often do not meet with their clients and usually never show up at proceedings, which in turn gives your creditors an advantage.
Buyer beware: Any petitioner whose office is in a strip mall, temporary or shared office space (like an Intelligent Office), or their basement is most likely not one you want to use. If you absolutely have to use a petitioner, find one that enlists the help of an attorney. Petitioners that are simply out to make a buck operate as cheaply as possible...which will show in the petitions they file on your behalf. You may end up paying for something you could have done better yourself.
Bait and switch: This is a common practice among these thieves. They advertise a low up-front cost and then hit you with everything from filing fees to copy and courier fees. Others will insist that they can help you avoid bankruptcy altogether by renegotiating with your creditors for a sizeable sum. Most hastily agree and fall victim to this so as to avoid the embarrassment of bankruptcy and the tough road of rebuilding their credit, only to be "advised" later to go ahead and file or to find out that the petitioner filed the bankruptcy petition without their knowledge anyway.
Reaffirm at least one debt - Depending on the chapter of bankruptcy you choose to file, Chapter 7 (liquidation) or 13 (repayment), you will be able to "reaffirm" a few debts, meaning you will be able to keep your vehicle or a credit card or two if you are able to make arrangements with those lenders or credit card companies that own your accounts. Most lenders prefer to get paid and avoid repossessing a vehicle or writing off credit card debt. Be financially prepared however, as your lender will require you to bring your account current immediately. The benefit of reaffirming a debt or two is that your credit can be rebuilt much quicker through on-time payments to these already-established accounts. You will then be able to raise your credit score slowly and eventually qualify for new credit at affordable interest rates.
Know the law - While you are most likely not a paralegal, there are numerous resources available to better prepare you for your bankruptcy filing. You should familiarize yourself with at least the basics such as which types of debt qualify for bankruptcy and which do not. For instance, most student loans and IRS tax liens are not erasable through bankruptcy. More importantly, you should know your rights according to bankruptcy law. Did you know for instance that a creditor is not allowed to contact you once you have filed your petition? They must communicate with the bankruptcy court only and any contact with you is considered a violation and you may be able to sue the creditor for damages. Additionally, a creditor is not allowed to file for a judgment or sell your debt to a collection agency after the bankruptcy is discharged.
Chapter 7 or 13? - Your overall debt will determine whether you should file for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 is a complete forgiveness of your debt where Chapter 13 is a court-directed repayment plan to your biggest creditors in exchange for wiping some of your other debt. Beware of attorneys that make the claim "Chapter 13 is NOT bankruptcy!", it is in fact a bankruptcy and most attorneys will push clients with few assets to file Chapter 13 as more often than not, attorneys will charge higher fees due to the complex nature of the filing and the attorney is usually the first creditor listed on the court-directed repayment plan.
Don't "DIY" it - Do-it-yourself bankruptcies are about as smart as self-administered open heart surgery...let a professional handle it. Online companies are making fortunes from people looking to save money by promoting DIY bankruptcy kits. Most of these are forms filled out online and submitted to a "boiler room" of paralegals that process them as quick as possible in order to meet of fulfillment quota. This is the worst mistake you could make with your financial future...it boils down to the aforementioned "You get what you pay for" adage. If you find yourself searching for DIY bankruptcies online, do yourself a favor and add the words "horror stories" on the end of that search.
Bankruptcy is not the end of the world, but it is not a complete pardon either and should only be considered if there are no other options left to you. If you can negotiate an affordable repayment plan with your creditors, then by all means try and then stick to it! Otherwise, prepare yourself and do the research before stepping foot in front of the judge. It could shave a few years off your sentence.