10 things you should know before filing bankruptcy

Think bankruptcy is the solution to all of your debt? Here are the pros and cons of filing as well as some alternatives to consider.

of paperwork. “In the period before I filed, all the creditors I listed sent letters asking me to work out a payment plan,” says Keith, who now wishes he might have considered their offers.
Another example is that of a Baltimore doctor who tried to file to have student loans discharged after finding them impossible to pay off on his $90,000-a year salary. His first attorney advised him to file under Chapter 7. This was bad advice, however: the doctor’s loans weren’t seven years old and therefore not eligible to be discharged under bankruptcy. “He still didn’t know that he couldn’t discharge the debt when he hired me,” says Michael O. Ramsey, a Baltimore bankruptcy attorney now advising the doctor. Time was wasted with the petition that legally couldn’t be filed, and now the doctor’s debts ar
e 10 years old. And it’s a matter that will still haunt the poor physician for some time because under law he must wait another seven years before filing again. Meanwhile, the doctor’s debt has grown from $80,000 to more than $300,000 while the case has dragged on and the legal fees accumulate.

The perception that it’s now easier to get credit after filing bankruptcy may stem from the availability of certain secured credit cards, says Linda Revelle, a counselor for the Consumer Credit Counseling Service of Delaware Valley in Philadelphia. However, getting an unsecured card, a car loan or a mortgage is impossible for several years, says Keith, whose travails provide the best caveat. In Grundy’s words: “It’s better to have a few late payments on your record rather than a full-fledged bankruptcy.”

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