Considering Bankruptcy?
January 4, 2012
If you’re visiting this site, there’s a good chance you came of age—personally and professionally —in the Eighties. Ahhh, the Eighties. We became known as the “Me Generation.” We became Yuppies, 24/7 devotees of the good life … the best clothes, the best clubs, the best cars, the best restaurants, all provided by well-paying jobs we thought would last forever.
We were the privileged ones. We went to college more than any previous generation. We owned more automobiles than any previous generation. We traveled more than any previous generation. We advanced farther and faster in our professions than any previous generation.
And – let’s face it – we partied “like it’s 1999.”
Many of us thought it would never end.
And then … welcome to the 21st century. Now, many of us are trapped in a financial quagmire not of our own making. And some of us are so loaded with debt that we’re considering bankruptcy.
YOU’RE NOT ALONE!
Let’s say it again: YOU’RE NOT ALONE!
You may feel like the loneliest person in the world. But you’re part of a not-very-exclusive club. And over the last few recession-filled years, membership in this club has been growing rapidly.
In the calendar-year 2010, there were more than two million personal bankruptcy filings in the United States (for the purposes of this article, we’ll focus only on personal bankruptcy).
IT’S NOT YOUR FAULT!
You may be surprised to learn that most people who file for personal bankruptcy are not wild spenders. Most are not irresponsible. Most are not the “dregs” of society, seeking a wild financial fling and then looking to bail out without paying for it.
“Most filers are actually good citizens who’ve worked hard their whole lives, paid their taxes, contributed to their communities, and raised responsible families,” says Brian Cohen of The Cohen Law Firm, a well-known South Florida Bankruptcy attorney (www.ForAFreshStart.com) . “But they’ve run into unfortunate situations that, in most cases, weren’t of their own making. Loss of a job. Illness in the family. Loss of a loved one. Divorce. A series of unfortunate, uncontrollable circumstances. And, of course, RECESSION.”
In addition, most people who file for bankruptcy have spent years trying to pay off their debts, only to be crushed again and again by the interest payments, or by additional life-circumstances.
“Many are very proud people who want to pay off their debts,” Brian Cohen says. “And they struggle so hard to do it that they often end up with physical and emotional illnesses. For them, bankruptcy protection is often the only answer.”
MYTHS ABOUT BANKRUPTCY
• “Everyone will know.” Not true. In fact, hardly anyone other than your creditors will know.
• “I’ll never get credit again.” Not true. Once you’re rid of the burden of crushing debt, you’re considered less of a risk. Many people, in fact, begin receiving credit card offers, often at 0% interest rates, within a month or two after filing for bankruptcy. In addition, since your debt-to-income ratio is now dramatically improved, your income has little or no debt to offset it, thereby giving you more (often much more) disposable income. Further, since you probably cannot file for bankruptcy for another eight years, you pose much less of a risk to prospective creditors. In short, you are now the perfect candidate for credit—exactly the type of person to whom companies want to extend credit.
• “I’ll lose everything I have.” Nothing could be further from the truth. Most people who file for bankruptcy don’t lose anything.
• “I’ll get threatening calls from creditors.” Again, not true, says Cohen. “Once you tell them you’re filing for bankruptcy, and have retained legal counsel to do so, they will immediately stop calling you once you refer them to your attorney.”
CHAPTER WHAT?
The two primary forms of personal bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 is the most common form of bankruptcy, a “fresh start” in which a consumer asks the bankruptcy court to discharge all debts, because there’s no real hope of paying them. Chapter 7 is available to both individuals and married couples. Individual debtors typically receive their discharge within 3-4 months of filing the case.
To be eligible for Chapter 13 bankruptcy, generally filed when the individual has a source of income, and the ability to re-pay some debts, the current limit on secured debt (such as mortgages and car loans) is $1,081,400, and the limit for unsecured debt (credit cards, medical bills, etc.) is $360,475. These amounts are updated every three years. The debtor keeps his/her property and makes regular payments to the Chapter 13 trustee out of future income to pay creditors over the life of the plan (3-5 years).
HOW TO FIND A GOOD BANKRUPTCY ATTORNEY
• When you look for a bankruptcy attorney, look for a bankruptcy attorney. Not a general-practice lawyer, who may have very limited experience with bankruptcy. Not someone who dabbles in only one area of bankruptcy law, say, Chapter 7. Not your cousin Melvin’s recommendation, or your father-In-law’s (unless, of course, your cousin Melvin or your father-In-law have themselves filed for bankruptcy!). The practice of bankruptcy law is a very specialized one. And the people who specialize exclusively in it—or predominantly in it—are the ones who generally get the best results.
“I’ve had more people than I can possibly remember come to me after having gone to some other lawyer ‘recommended’ by a friend or relative,” says Brian Cohen. “And I can’t tell you how many times I’ve been absolutely flabbergasted by the ridiculous advice given the client.
“In addition,” Cohen adds, “I often come across problems caused by referrals from other attorneys. Some attorneys like to show they’re well-connected. And they’ll often send someone to a friend or crony who’s not actually a bankruptcy attorney, but who has handled occasional matters pertaining to debt, usually business debt.”
• When visiting the offices of bankruptcy attorneys, pay attention to the surroundings. The way the office runs—and looks —can give you some clues about the attorney(s) who work there.
• “Ask! Ask! Ask!” says Cohen. “This is all new territory for you. And you have a right to know. Ask how many bankruptcies—personal rather than professional or corporate—they’ve handled. Ask if they handle BOTH Chapter 7 and Chapter 13 cases; handling only one without the other is like going to a surgeon who can only operate with one hand. Ask if you’ll have the access you need during the process. Ask who you’ll be working with and ask to speak with them. And ask about all the technical details: How long? How much? What’s involved? What do I have to do?”
• To someone who’s struggling with possible bankruptcy, price is obviously important. But don’t use it to make your choice…it could be the most expensive “cheap” choice you’ve ever made!
• Finally, how do you feel with the attorney? Is this a person with whom you can work? Is this a person who understands? This last point, in particular, is important to Cohen, who, as a small boy, watched his family go bankrupt … and watched it nearly tear his family apart.
This is by no means a comprehensive legal guide. But, if you’re thinking seriously about bankruptcy, and about making a new start, think of it as a GPS that can give you some good compass points.
Steve Winston (www.stevewinston.com) has written/contributed to 17 books, and his articles appear in major media all over the world.