Bankruptcy

When do you know you should look into bankruptcy?

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Are you thinking about bankruptcy?

This is really a trick question, because filing for bankruptcy is kind of like having a heart attack.  By the time the patient is in the ambulance speeding along toward the hospital’s ER, or the in a taxi headed to bankruptcy court, the question of whether or not there exists a serious problem has long since been resoundingly answered!

Bankruptcy is a lot more involved than just going through a lot of unpleasant and complex legal proceedings.  Do you know anyone, except maybe a lawyer, who looks forward to going to court?  Who has confidence that everything is going to work out right?  Who doesn’t expect that there will be terrible prices to be paid, in self-esteem if not money, no matter how things turn out?

Many people think that folks look at bankruptcy as an easy way to get out of debt- but it is neither.  It is far from quick and easy, and there is no assurance the court will release the debtor from all, or even any, of the existing debts!

So you might ask yourself why, with all the uncertainty, personal trauma and lifestyle disruption anyone would consider filing for bankruptcy in the first place.

Well, remember our example at the start of the discussion?  Nobody I can think of likes going to the hospital.  How about you?  And what about the people you know?  But when that ticker starts acting up folks will do everything and anything they can to get themselves to the hospital as soon as possible.  It’s the same thing with the dentist and someone with a sore tooth.  You beg the dentist: “Thrill me, drill me, my dentures kill me!”  He smiles slyly and complies with your wishes.

And that’s just the way it is, some things won’t ever change.  When you need help- really need help- you do whatever it takes to turn things back the way they were before all the problems started because it all seemed so much simpler then.

The first thing to do, even before you file, is to ask somebody.  Get some input from family and friends form among your very own trusted inner circle.  Remember Vito Corleone?  Even the fable Don himself always sought the advice of his trusted Consilliere, Tom Hagen, before he made his next move.

So do like the Don as you make your plan.

After speaking to your friends and family consider what they’ve said.  Is there really a problem and do any of them see some legal solution to your problem if there is one?  If you can put together enough credit from “Paul to pay Peter” then you just may be lucky enough to wiggle yourself free from the bejeweled brochette of insolvency!

But remember that if these associates can’t tell you what you want to hear that things aren’t over by any means.  Unless these confidants are lawyers or credit counselors, or unless they know what they’re talking about because they’ve been through the ringer themselves, their advice may be worth every last cent you paid them for it.  Zilch!  Zero!  Nada!

You just may find yourself having to go to a professional for advice.  There are at least two places to go for paid advice that are reliable: you can go to either a credit counselor or to a lawyer.

The lawyer will know how to take things to the next level.  He’ll probably try to work things out with creditors.  But if things can’t be ironed out then he’ll be ready to take the next step and go to court- maybe to ready!  The lawyer will be your “soup to nuts” solution if you expect that you want help in going all the way.

But if there’s a chance at working it out without going to court then maybe a credit counselor can help you out.  These are professionals who try to do their best to put you in place so that court will not be necessary.  After all, you can go to a lawyer anytime, right?  So if your debts are not overly, overly great and you have some sort of steady income than maybe the credit counselor can be the first, good choice.

When looking for professional help just make certain that you find out some things up front.  Find out exactly what they will do, their business hours, their telephone number and address, any timeframes involved, costs and payment structure (yes, THEY can turn around and bite you if you fail to pay them), their qualifications and references, their “batting average” or chance of success, what types of results they commonly get when they are successful, what types of information they want from you and who they’re going to share all that private information with, among other things.

Sounds like a lot of work, doesn’t it?  Many debtors have been heard to whimper that if they weren’t really in a pickle they’d have preferred just paying off their creditors!

Now what’s going to happen to you if you find yourself in bankruptcy court either because you filed or because your creditors ganged up on you?

Let’s keep it simple and just say that there are two main ways down this twisting path.  They are called Chapter 7 and Chapter 13 bankruptcy filings and this is because these are the chapters of the federal law books where the bankruptcy provisions are located.

Chapter 7 is the one that most individual debtors look for.  This is because Chapter 7 lets you ask the court to release you entirely from debts and lets you keep certain property no matter what happens.  All non-exempt property is then sold and proceeds are divided among creditors.  Remaining debts can then be forgiven.

The debtor or their creditors can also start up a Chapter 13 bankruptcy.  Chapter 13 is preferred by creditors because the court develops a plan to pay back creditors over a certain number of years.  The debtor still gets to keep non-exempt property-such as a home-while following the plan.

You can see that the Chapter 7 has more finality and is better for the debtor.  Creditors realize this, though, and if the debts owed them are big enough, and if the debtor has a steady income the creditors will probably prefer that there be a repayment plan so they can get their money back.

Even though the pleadings ask for one thing the court is free to do what it feels is best under the circumstances.   So a debtor asking for Chapter 7 release from all debts could find themselves stuck in a Chapter 13 court-supervised payment plan that will take many years to pay because the creditors asked for it. And, in like fashion, the court may grant absolute relief from debts to an individual against who creditors have filed Chapter 13 if the facts indicate that this would be the best result.

In any case these are deep waters filled with different currents.  You want to stay clear of windy surf and rip tides and this is most assuredly done with reliable help on your side.