Negotiations with creditors have failed. Repossession is imminent and foreclosure proceedings have begun. Your income is simply not sufficient to pay your bills, no matter how low the payments are. It may be time to consider bankruptcy.
Bankruptcy law evolved as a reaction to the abuses surrounding debtor’s prison. Before the nineteenth century a prison system existed for those who didn't pay their bills. If a merchant filed a claim, the debtor was incarcerated until his debts were paid. (Women were not found in debtor's prison, not because of chivalry but because they did not have the ability to borrow). The lender was legally responsible for the expenses of the prison stay, including food, but seldom paid. After all, a debtor would have to sue in order to enforce this law, and it was rather difficult to sue when in prison. As a result, many borrowers languished in prison for years, surviving on what their family could bring to them Jr, in many cases, simply starving to death. Although some lenders would doubtless not object to the renewal of debtor's prison, fortunately we live in more enlightened times. Bankruptcy was created to provide a second chance (or third, or fourth) to those hopelessly in debt. It provides a mechanism to wipe the slate clean and begin anew. As times have changed, though, so has the bankruptcy code. Not all debts can be wiped out. The proceedings can be easily disqualified in the event of improper procedures. There are many things a debtor should know before resorting to bankruptcy.
THE BANKRUPTCY DECISION
The decision to declare bankruptcy is not an easy one. Unfortunately, many bankruptcy attorneys recommend bankruptcy to just about anyone they consult with. All too often frightened consumers are advised to declare bankruptcy just to avoid a few debts. This is a mistake.
Bankruptcy should truly be a last resort, as the legal system meant it to be. A bankruptcy appears on your credit for ten years, and although lending criteria are slowly changing, many lenders will not even considers an applicant who has had a bankruptcy. What's more, a Chapter 7 bankruptcy can cost you most of your property. Before making a decision to declare bankruptcy, estimate how bad your situation really is. On a piece of paper, make a list of all your assets and the approximate value they could be sold for. On the other side, add up all of your debts. If the debts exceed the assets by a large percentage, you may wish to consider bankruptcy. On the other hand, if it seems that your situation may improve (you may get a new job or a second income), or if your assets are of greater value or close in value to your debts, a different approach may be appropriate.
Negotiate with your creditors Explain your situation and ask for more time to pay. If the creditors refuse and continue to threaten garnishment, tell them such action would force you into bankruptcy. No creditor wants to hear the "B" word. Using bankruptcy as a threat is a very powerful negotiating tool, confronting creditors with a choice between getting a little each month and probably getting nothing through bankruptcy. Don't try this tactic on secured creditors. They may decide to repossess your property to avoid having to go through court.
Contact Consumer Credit Counseling As mentioned earlier in the book, Consumer Credit Counseling is a non-profit group funded by creditors to help consumers negotiate repayment plans. It is often able to negotiate payment arrangements better than the individual because of its constant contact with a variety of creditors. If you can't negotiate a satisfactory arrangement, give these people a try. Remember, the fact that you are using credit counseling may appear on your credit record.
Bankruptcy this kind of filing allows you to repay your debts in a court-mandated fashion and will appear on your credit record for only seven years.
If negotiations fail or there simply isn't enough money to make ends meet, bankruptcy may be your only option.
Bankruptcy does not necessarily discharge all debts. If your debts are exempt from bankruptcy, filing will do very little to improve your situation. If a co-signer was used, the debt would then be owed by the ~o-signer, unless that person also declared bankruptcy. In community property states a spouse's assets and debts would also be included in the bankruptcy, assuming they are community property. Consider all facts very carefully before deciding to file.
