Individuals file for bankruptcy for a myriad of reasons. It is easy to dismiss bankruptcy as simply a vehicle for those who made poor financial decisions. While this is true for a small fraction of cases, who among us is immune to poor decisions? Whom among us wants to be judged by our mistakes? In truth, bankruptcy is often dismissed until you need it. I think about it this way. How many unsolicited credit card applications do you receive in the mail? Imagine if you were living paycheck to paycheck; you or a loved one was in a serious accident; or a serious health condition has been diagnosed? Would you take advantage of these unsolicited credit card offers?
I have been practicing bankruptcy law for over 20 years. I have learned many things over the years, but the one lesson I have followed the most is this. The best decisions are the ones made after reviewing as much information as possible. Below are some of the most common questions I am asked with a brief explanation.
- What exactly is bankruptcy anyway? Bankruptcy is completely voluntary. In most cases, individuals have reached their breaking point and are simply overwhelmed by their debt. Filing for bankruptcy offers protections from creditors. It stops the endless calls from collection agencies. Wage garnishments and foreclosure actions are halted while the bankruptcy is proceeding. At the end of the process, filers will receive a discharge and be granted a fresh start.
- Should I file for bankruptcy? As previously mentioned, are you at your breaking point? Are you being pursued endlessly by collection agencies? Are you using your credit cards for necessities. Are you entering high interest loans just to get by? If you answered yes to any of these questions, you should contact a bankruptcy attorney at a minimum.
- Will I lose my house, car, or other property? The purpose of bankruptcy is not to make you destitute. It isn’t designed to rob you of necessities. The bankruptcy code offers exemptions to protect your property. Most states offer exemptions as well. These exemptions are designed to allow you a basic standard of living. In my experience, it is extremely rare to lose anything other than debt in bankruptcy.
- Will my credit be ruined forever? No. Most people who file for bankruptcy already have low credit scores. If you have a credit score in the 700s, it will be impacted. However, bankruptcy is not a scarlet letter that follows you for the rest of your life. Assuming you establish a good credit history moving forward, e.g. making your payments on time every month, your credit score will rebound. Also, bankruptcy can only be reported on your credit report for up to eight years.
- Can I buy a house after filing bankruptcy? Each lender has their own rules regarding mortgages. FHA, for example, require two years and a credit score in the 600’s. Fannie Mae has stricter lending rules. However, you need to demonstrate a good credit history since the filing of bankruptcy.
Deciding to declare bankruptcy is a difficult decision. It should not be taken lightly. However, if you know someone who filed bankruptcy and received a discharge, ask them their thoughts on the subject. Has their life improved? I am willing to bet that they’ll tell you it was the best decision they ever made. If you would like more information regarding bankruptcy, or would like more detailed answers to these questions or different questions, please contact me.