Deciding whether or not someone should file bankruptcy can be a very difficult and sometimes painful decision to make, although it could be the best financial decision ever if the circumstances really warranted it.The reason for this is that the person would get a fresh start and they would get rid of all of their debts so they would be able to move on with their life and begin anew. The banks try to tell people that they will never have good credit again, their life will be a mess and they will never be able to own a house, but those claims are just myths.
After bankruptcy, if a consumer is able to do the basic things necessary to reestablish their credit, then they will be able to buy a house two years after the file bankruptcy. After their bankruptcy is discharged they will be able to get a car loan although at somewhat higher interest rates until they have reestablished a higher credit score. The reality for most people with the kind of debt where they would need to consider bankruptcy is that unless they filed bankruptcy, they would not be able to buy a home or purchase a new car within two years. The real decision ultimately comes down to whether or not someone was willing to take the hit on their credit for the short term.
Nowadays, it is very different than it was 10 to 20 years ago as far as the impact on a person’s credit. Within four or five years, most people can get back to having a credit score of 700.They can obtain unsecured credit cards, get personal loans, buy houses, and do everything that anybody else who had not filed bankruptcy would normally be able to do.
The stigma and the supposed negative impact on a person’s life that the banks want to portray does not actually exist. Filing for bankruptcy can be the best financial decision if someone is willing to go through the process and do what they needed to do in order to get a fresh start.
The first reason would be that bankruptcy is nothing more than a business transaction, because the consumer merely engaged in a business relationship when they acquired credit from a vendor such as a credit card company, a payday loan company or a finance company. The company loans the person money and the person would have agreed to pay them back at a certain rate of interest, making it strictly a business deal.
The fact that the person could not pay it would not mean they had to be ashamed, because the shame aspect would be all about instilling guilt on someone when they did not need to feel it. If someone could not pay a debt in business, then the lender would either sue them or they would negotiate some kind of a deal to settle the debt.
If someone who was dealing on the consumer side was not able to pay the loan, then they would be afforded protections under the bankruptcy code. The only reason someone would feel shame about filing bankruptcy would be because they were making themselves feel it. The reality is that it would be a business transaction, the person would be getting rid of a debt and in return they would have a bankruptcy on their credit and that is nothing to feel guilty or shameful about. Filing a bankruptcy is what that consumer needs to do to take care of themselves and/or their family.
The next good reason why bankruptcy would be a good thing is that if the person files their bankruptcy properly and gets rid of all of their debts, then they will be able to buy a home two years after the bankruptcy. As long as the person had a bankruptcy discharge and had a 3½% down payment, they would be able to get an FHA first time home buyer loan and they would be able to get into a home.
If they did not file bankruptcy, however, it would be highly doubtful they would be able to have the 3½% down payment and it would be highly doubtful their income ratio would fit into the guidelines in order to qualify for buying a home.
The third reason why bankruptcy is not a shameful thing is because if someone was driving around in a very old car, and nobody would give them credit to buy a car because they had collection items, judgments, and had no disposal income, then by filing bankruptcy they would be able to draw a line in the sand and basically say that they did not have any more debt and they were a good credit risk because they would be able to pay them back. Someone really needing to get a new car would be a good reason, not a shameful reason to file bankruptcy.
The next good reason why bankruptcy would be a good and not shameful thing is because it would improve the person’s quality of life with their family. If someone was struggling with debt, there would probably be a strain on their marriage, on their relationships with their kids, and on their relationship with their employer.Carrying around a mountain of debt is a very difficult thing to live with on a day-to-day basis.
When the person gets rid of all of their debts and starts out fresh after bankruptcy, things would probably be a lot happier at home and they would be able to function much better at work because they would not be worrying about their debt situation and what was going on.
They would probably have more disposal income so they could spend time and money to do things like take family vacations. When asking clients about filing for bankruptcy, I often ask when was the last time they took a family vacation. Most people who are dealing with a mountain of debt generally cannot answer that question in the affirmative that they had taken a vacation recently, which is another good reason why bankruptcy would be a good, not a shameful thing because it would improve the quality of the person’s family life.
The decision to hire an attorney for anything can be a very difficult decision to make because the person has to spend time, money, and resources investing in the attorney who would help them through whatever situation they were going through. A lot of people advise that the person should just handle the bankruptcy themselves.
Most people think it would not be that hard so they think that anyone would be able to do it themselves. Quite often consumers come to me after filing their own bankruptcy because they are in trouble since they did not file their paperwork properly. Either they did not provide the correct documentation or they did not disclose assets properly and then all of a sudden they have a U.S. Trustee on their case making their life miserable.
People should try to make sure they have good representation any time they have to deal with complex Federal Law. It would be a smart move for someone to have an attorney to file bankruptcy for them because they are making a decision that would impact them and their financial future for the next ten years. The smart thing to do would be to have competent representation for the bankruptcy filing.
In terms of who the person should hire to be their bankruptcy attorney, they would need to do their due diligence and research and make sure the person they were hiring was competent.There are lots of ways to check out attorneys now.The person could look on the state bar website and see if the attorney has been disciplined or sued. They could look up attorneys on Yelp, which is very popular now, or they could also search Google for an attorney and read their Google reviews.
The person could ask the attorney for references and they could look at the attorney’s resume. There would probably be several more things the person could do in order to check out an attorney, but what they often do not do very well is that they never bother to ask the attorney if they had malpractice insurance.
There is a myth that all attorneys are required to have malpractice insurance in California, which is not the case. If someone hired an attorney who did not have malpractice insurance and then the attorney made a mistake, there would be no pool of money for them to collect their damages from the lawyer. I always tell my clients that any time they are hiring an attorney, one of the first things they should do is verify that the attorney had malpractice insurance. Malpractice insurance is very expensive these days, so attorneys often decide to forgo the malpractice insurance and just take their chances.
I personally do not think that is a smart thing to do, because they should make sure they are insured so they could protect their family in case they did make a mistake but also so they could protect their clients in case they made a mistake. We are all human and we all make mistakes every once in a while, so all parties involved need to make sure that they are protected.
People who file bankruptcy often think their life is down the toilet and that they are in for a painful experience that will be very difficult to get through and it will be incredibly humiliating. In reality, none of these things are true. When someone hires an attorney, they need to provide them with the documentation the attorney requested, they meet with the attorney, review their petition and schedules that they need to file with the court, and then the attorney would file the case.
A consumer debtor’s life will become much better because everything would become simpler once they filed their case. When the case is filed, the “automatic stay” goes into effect, meaning that it would stop the phone calls, the collection letters, the wage garnishments, the bank account levies, and the IRS and Franchise Tax Board from making the person’s life miserable. The day the person filed their case would actually be a very bright day.
They would have to do a couple of simple things after they filed their case, they would have to take their second credit counseling class which they would do online and takes a couple of hours. They need to make sure they provided their attorney with all the documents to the U.S. Trustee and they need to attend their creditors’ meeting which would basically be the only hearing they would have to go to in a Chapter 7 case.
In San Diego, the hearings are on the hour, so there would be a 9:00 a.m. calendar or a 10:00 a.m. calendar for example. The person would be in a hearing room with 10 or so other people just like them who had filed bankruptcy.
They would go up to the hearing table for about two or three minutes and testify under oath and answer some basic questions such as whether they had reviewed their petition and schedules before signing, whether they had listed all their assets, whether they had listed all their debts, and whether the tax return that they had provided to the Trustee was the same tax return they had filed with the Internal Revenue Service. There might be a few other simple questions and then the person would be done.
The case would pretty much be over once the hearing was completed and they would just have to wait 90 days or so in order to get their discharge in the mail at which point their case is over. People try to convince consumers that it is really a nightmare process, but as long as the person had good and competent representation and they were cooperating with their attorney and doing everything they were supposed to do, life would become a lot better on the day they filed bankruptcy.
The person’s life would take a turn for the positive from the day they filed bankruptcy. The automatic stay would go into force and effect, which would basically be a federal injunction against any and all collection activity. There would be no more phone calls from any bill collectors and there would be no more bill collection letters in the mail. Any bank levies where the person’s money was getting levied at the bank and garnishing that was being done to their wages at their job would stop immediately, and all the monthly minimum payments, payday loans and all of the stress would stop.
Once a consumer does not have all of their debts hanging over them anymore, they could start to look forward in their life. They could potentially get themselves a new car, save up enough money for a down payment so they could buy a house, and there would be less stress and strain at their home, so their marriage and their relationship with their kids would really improve.They could start doing the things they used to, like going out to eat every once in a while, taking a family vacation, or maybe just going shopping and enjoying themselves.
Whether or not the banks want people to know this, the reality is that the person’s life improves the day they file bankruptcy.
Most people do not realize this, but their credit score will often actually increase after filing for bankruptcy. Someone who had open collection accounts, judgments, tax liens, tax levies, and 90 to 120 day late on their credit cards would probably have a credit score that was absolutely horrible anyway. That would end the day they filed bankruptcy.
Someone who got through their bankruptcy would be able to start doing things like getting secured credit cards with banks or obtaining and store credit cards with Target or Wal-Mart for example, so their credit score would actually start going up because they would not be a credit risk anymore, and people would start loaning them money.
Finance companies would be able to give them a car loan, although unfortunately it would be at a much higher interest rate for a few years, but the person would get that positive credit reference on their credit report. The bankruptcy would show on their credit report, which would affect their score to a certain extent, but all the other things they had before the bankruptcy would all be gone and they would be replaced with positive credit references so the person’s score would slowly start to rise.
This is one method to improve someone’s credit and it is one of the things that I help my clients with moving forward once they got through their bankruptcy case. The banks do not want people to know their credit would actually get better but the reality is the person would probably have a better score than they had in several years 6 to 12 months after filing for bankruptcy.
The biggest misconception is that the person would never get credit again and that they would always have this stain on their record. The reality is that a chapter 7 bankruptcy would stay on the person’s records for 10 years but they would be able to get credit afterwards because they would not owe anybody any money/ As such, they would then become a good credit risk.
There is another misconception that the person would not be able to get a new job because they had filed for bankruptcy, whereas the reality is that when employers pull the person’s credit and see collections, bank levies and things of that nature, it would be a lot worse than if someone had just filed bankruptcy and then did not owe anybody any money.
Another misconception is that the person would never get unsecured credit for 10 years, whereas the reality is that after getting done with the bankruptcy, credit grantors would give the person credit in one, two or three years provided the person had done things to reestablish their credit after the bankruptcy.
People also have the misconception they would never be able to buy a home, whereas the reality is that if they did what they needed to do in order to reestablish credit and saved up the money for a down payment, then they would be able to buy a home two years after their bankruptcy was filed.
Some people have the misconception they could go to jail if they filed bankruptcy whereas nothing could be further from the truth. Bankruptcy is a right granted under Federal Law and the person would be allowed to take advantage of that right once every eight years.
Another misconception is that it would be incredibly expensive to file bankruptcy. There are firms out there that charge outrageous fees. Many people go to these big bankruptcy mills and pay thousands and thousands of dollars for a case that could have been done much cheaper than that.
I always advise people that they would really need to find out how much it would cost to file their case, because everybody’s case would be different, some might be more complicated, whereas some might be relatively easy. The person should not have to pay a retail price for a complicated case when their case would actually be very simple. I always tell people to just make sure they shop the market so they really pay the appropriate fee for their kind of case.