to this trend. Still, experts say that many people, now more accustomed to the notion of bankruptcy, think it’s an easy way out. For one thing, they may have seen people they know come through it and rebuild their credit without losing their house or car.
“Knowing someone who has filed in the past puts people at ease about filing themselves,” says Charles A. Grundy Jr., consumer bankruptcy attorney in Lexington, Kentucky. In fact, Grundy says that the attitude toward filing for bankruptcy has become so relaxed that he is beginning to see repeat filers. “These people don’t fear bankruptcy at all.”
Kim, a New Jersey dialysis nurse, didn’t think twice until the day of her bankruptcy hearing in 1985. “I heard cases in which people owed tens of thousands of dollars,” she says. “I thought I could pay my debts and avoid filing, considering the $700 or $800 I was paying the lawyer.” In 1995, a full 10 years after filing, Kim and her new husband were turned down for a mortgage; they swallowed hard when the broker cited her bankruptcy as the reason. Finding a lender became a nightmare that took the couple an extra year. “We had to write about eight involved letters to mortgage officers and underwriters just to explain what had happened, even though the bankruptcy should have been removed from my record. “It was really demeaning,” she adds, “because we had to expose everything.” And the problems didn’t end there: Kim recently found out that a major credit issuer has refused to give her a card because of her past bankruptcy.
The following is a list of 10 important things to consider before filing bankruptcy. Pay careful attention to these points to avoid filing incorrectly or unnecessarily.
1. CHOOSING A CLEAN SLATE OR STAGGERED PAYMENTS
One of the first things any book or lawyer will likely tell you is that there are two consumer bankruptcy choices at your disposal. The difference boils down to just what kind of debt you’ll continue to carry and whether or not you’ll work to pay off what you owe. Under Chapter 7 bankruptcy, you can effectively wipe away any debt you have and start anew, but at the cost of selling off some of your assets–your car, home, etc. The alternative, Chapter 13 bankruptcy, essentially allows you to devise a payment schedule for outstanding debt, one that best fits your budget. However, there’s one thing that’s the same for both filings: your credit report will carry a negative entry reporting your bankruptcy for 10 years.
2. FILING DOESN’T CLEAR ALL YOUR DEBT
Under Chapter 7, you liquidate the unsecured debt you owe; in effect, it’s a declaration that you have no plan to pay creditors back. Therefore, whatever you owe on credit cards and credit lines that the courts deem to be unsecured with no property attached to them will be swept away. However, student loans are priority debts and cannot be discharged if less than seven years old. In addition, secured debt on