Is bankruptcy right for me?

Studies have shown that the major causes of serious consumer delinquency are layoffs, illness, and marital problems.

Bankruptcy was discussed among the founding forefathers when our nation was founded. They understood that chronic debt was bad for the fabric of society. Chronic debt creates health problems, family problems and other types of situations. These types of problems drag down society. Accordingly, they borrowed a principle from the Old Testament, which states that money lenders should forgive those who owe them money, once every seven years. Certainly there was a lot of wisdom in the old law, and the founders understood this.

If you feel irresponsible, consider the alternative. It is truly irresponsible to not do anything. These problems do not go away by themselves. In fact, I can assure you that the bill collectors will not stop calling! The responsible thing to do is take some action to resolve the issue. It may not involve filing for bankruptcy. One thing we do not get more of in life is time. Don’t spend a good deal of it mired down in a financial mess.

Before filing bankruptcy, consider all of your alternatives. Add up all of your debts, and take into consideration whether one or more creditors are threatening garnishments, repossessions, or a foreclosure of your home. Calculate your monthly interest payments on your bills, and figure out how long it will take, and how much per month it will take to get out of debt. Take into consideration that the credit card corporations are not your next door neighbors, but are major corporations, in stiff competition to extend credit to extend its profits. Have the corporations been completely honest to you? Have the interest rates, minimum payments, and late fees changed? Did they tell you about hidden fees, such a over the limit fees?

Approach debt consolidation loans and home equity loans with skepticism. It is usually not a good idea to trade an unsecured loan with a secured loan. It will usually drop your interest rates, but you must be able to make the payments each month, or you will lose your home.

Beware of credit counseling rip-offs. It is a debt trap for the unwary. They advertise their “non- profit” status relentlessly, but they pay lavish salaries, and may steer customers to for-profit mortgage companies that are affiliated with the counseling company. Some companies charge “voluntary payment” fees, and they can be steep. The Federal Trade Commission has shut down several well known debt counseling companies, and the IRS has indicated that the industry may lose its “non-profit” status.

Let’s Blast a Myth: You can get credit after bankruptcy.

In today’s competitive lending environment, credit is available to the recently bankrupt. It may be more expensive than before, and available with lower limits, but it will be offered. A secured credit card (one backed up by money in the bank) is usually available post-bankruptcy at lower rates than unsecured cards. Of course, you should use credit cautiously and pay on time.

Studies show that 18-24 months after a bankruptcy, debtors can qualify for a loan on the same terms as if they hadn’t filed bankruptcy. The lender is more interested in your down payment, the stability of your income, and the relationship between the loan payments and your monthly income.

Bankruptcy at least makes the debt shown in the negative history unenforceable. A debt that has been discharged in bankruptcy must contain a zero balance. Objectively, you may be a far better credit risk after bankruptcy than before.

If I don’t file bankruptcy, which debts should I pay first?

You should use your money to pay for what is most necessary for your family – food, clothing, shelter, and utility service. Mortgage and rent payments should always come first. Make whatever payments are necessary to insure essential utility service is not disconnected. A car loan should be paid after critical items (food, rent, clothing), and before any payments on unsecured bills.