Bankruptcy

[plthijinx]

i'm curious, has anyone here filed for the big bankruptcy? you know the one, where you keep the house and you keep your car. what are the pros/cons of it? a cousine of mine is considering doing this and i've been trying to talk him out of it because of the 7 years bad luck.........what are your takes? for say $170,000 worth?

[depmats]

Ok, everyone can look down there noses at me now. I did due to medical issues 3-4 eyars ago. The 7 years bad luck is just not true. IF you know what to do. File Ch 7 if your income still supports the house payment and the car payment and you keep making payments, you get to keep them. Everything else is discharged(at the trustee's discretion) It is rare that a discharge is not granted - usually when it is obvious that the individual can pay the bills, but are choosing not to. 2 weeks after filing BK - open your mailbox to find your first guaranteed credit card from capital one or another high rate card. pay your annual fees, in 6 months you will have 4 CC's. probably 2 Cap 1's, 1 Cross Country, 1 First Premier. Max them out 1 time and immediately pay them off. Use each one every month, even if it is just for gas and pay it in full every month. They will raise your limits. When the first one gets to a $1000 limit and their are $0 balances go to a local credit union or USAA or something similar and ask for a small secured credit line. now you have established credit with a more reputable lender. do this and within 2 years you will have a greater than 700 FICO and can generally qualify for decent terms in most things. the theory is that since a person BK'd once they have learned their lesson and cannot file again for 6 years even if they wanted.

BK has a stigma but is far less damaging to credit than any Consumer Credit Counseling Service. I personally filed BK, and I am a manager for a finance company.

[BrianR]

Funny you should bring this up...I need to do the big B myself.
For more than the afrementioned $170K. Closer to $200K I would think.

Some of this is my fault, some not. Mostly, I should not have gone on a certain spending spree in 1996. Big mistake, I should have invested or banked it all. I would be a happier person today, believe me.

My problem is that it costs me about $1000 to file, and I live on $800/mo. And with my bad credit (negative score), I am having trouble even finding a job that I can do. I am saving what little I can put away every month, but it's not much, and considering I've been trying for years, I haven't made much progress.

My kingdom for a McJob for two or three months!

Brian

[lumberjim]

here's what I know about bankrupcy:

There are two types of personal BK's. Chapter 7 and Chapter 13.

Chapter 7:

If you own your home and have more than 80% equity, you must sell the home in attempt to repay your debts, or go ch13. If you have less, you may keep your home....provided you do not include that debt in your schedule of creditors. You do not repay the debts you DO include, and this usually discharges within 3 months. If you maintain debts through the BK, you must then reaffirm these debts with each lender. IE, if you keep your car loan going, the bank will be notified of your filing even though they were not included. They will contact you to reaffirm the debt. Once you have filed, you may not file again for 7 years. This is quicker than a chapter 13, but more damaging to credit.

Chapter 13:
Chapter 13 is administered by a trustee, and takes typically 5 years to complete. You list the creditors that you intend to include, you get to keep yuor house regardless of equity ( again assuming that the loan is NOT included) and the trustee determines a repayment schedule. you pay the trustee one payment each month, and he/she disburses funds to the included creditors according to whatever formula they use. It is usually impossible to acquire a new loan while the 13 is open. A short time ago, I had one lender that would entertain it, provided the trustee had no objections, and the schedule of payments in the bk could be proven to be current or ahead of schedule. The trustee typically would place a cap on the new payment. That bank has since revised it's policy and no longer does open BK's.

From my standpoint, if you must file, go 7, but keep a few loans open that you know you can afford to pay. preferrably at least one installment ( same payment every month lke a car payment or secured loan) and one revolving acct(credit card or credit line). reaffirm these debts, and be extra careful to make all payments on time. Bad credit AFTER a BK is usually the kiss of death.

BK info will remain on your credit bureau for 10 years from the discharge date, so although you may recover nicely form the disaster, you are likely to feel the ramifications for a good while......up to 15 years if you do a 13.

and i agree with dep[mats, credit counceling is a bad idea. it is seen by the banks to be like half a ch13 bankrupcy( they are administered very similarly). but worse, because you can still file a BK if shit gets ugly. You basically are relinquishing control of your finances and admitting that you are over your head.....why would they give you MORE rope to hang yourself with? Before you do that, try contacting the creditors individually to work out payment plans on your own.

[plthijinx]

that's what i was trying to explain to him yesterday through email and the phone. we just butted heads the whole time. and i didn't get anything into him except the bad mood he put me in. i'll show him what you put down, thanks jim, guys.

[elSicomoro]

Rho went under CCCS protection 4 years ago--it didn't affect her credit rating too badly, her interest rates are low, she's almost paid off and she actually got a credit card while on it (which you're not supposed to do, and which we immediately cut up).

[depmats]

Originally posted by sycamore
Rho went under CCCS protection 4 years ago--it didn't affect her credit rating too badly, her interest rates are low, she's almost paid off and she actually got a credit card while on it (which you're not supposed to do, and which we immediately cut up).

There are different types of CCCS - some of them are effective and do not further harm your credit. Most of them hurt your credit though, in that they don't pay every bill every month, they only guarantee that if you stay in the program your debt will be eliminated. I have seen some people where there CCCS agency only paid one card/month which completely through them in the shitter. Sometimes the CCCS settles for a smaller amount if the creditor will be paid off faster. But then the account stays on your CBR and is tagged "Settled-Not Paid In Full" That generally scares away future lenders.

Ch7 is the way to go. You will pay higher interest rates for the next car and probably the next house, but if you wisely and quickly move to reestablish credit as described above you will quickly rebound into A paper lending. (2-3 years, depending on bank)

The cost for filing is different in each state.(about $200-300, generally) You do not need a lawyer or legal clerk. Only $25 at the bookstore for a "Pro Se" BK kit, all of your bills, and patience. Make copies of the kit before you start writing on it, because when you deliver it to the BK court they will tell you at the counter if something is wrong and how to correct it. And strangely enough noone stood up and pointed at me or chanted LOSER, LOSER when I went down there.

1 last thought - I would BK on all unsecured debt, don't hold any affordable ones out like LJ suggested. Future debtors look at the inception date of a debt to decide whether they will count it as re-establishment or not. If the date is prior is BK discharge, it doesn't gie you any extra points.

I lied - 1 more, after the BK is discharged the creditors will show on your CBR but with the caption "discharged, Ch 7" it will no longer show previous balance or payment history, that is how you FICO can rebound so rapidly.

[lumberjim]

Originally posted by depmats



I lied - 1 more, after the BK is discharged the creditors will show on your CBR but with the caption "discharged, Ch 7" it will no longer show previous balance or payment history, that is how you FICO can rebound so rapidly.

actually, I see:

"account included in bankrupcy" classified p&l ( profit and loss write off) the idea behind keeping one account open is to have SOME performing credit. if you charge everything off, getting the first account set up to begin reestablishment can be much more difficult....some banks won't gp near you if the word "bankrupcy" appears on your file at all.....i've seen people that have cosigned for a relative who filed, and their bureau shows "account included in ch13 bankrupcy" for the account that they signed on....and that gives me problems getting them approved...I have to find out what the story is, who filed, etc....

dep, what kind of finance company do you manage?

[depmats]

Household Finance. I deal with everyone from a 500 - to a 750 FICO. But have been known to work for a broker on the side. Everyone that I am aware of filing Ch7 had their first guaranteed CC before discharge was even announced. The first 3 accounts aren't going to be ones you are proud to have, with avg$40-50 annual fee and @22-25% interest, but they are just starters and you should be able to get on with more reputable companies in under 12 months. 24 months and you should have better than a 700 FICO (assuming you had positive credit before the BK)

[lumberjim]

you guys may be seeing some business from us soon...cfc's pass thru program is underwritten by household. "s" tier paper. do you do indirect, or direct?

[xoxoxoBruce]

Some one told me that when you declare bankrupcy, any debts aquired less than a year prior to the filing, will not be discharged. The reasoning is, it prevents people from running up their debt when they know they're going to bail. True??

[elSicomoro]

The debtor's goal in any Chapter 7 is to have as many debts discharged as possible. The general rule is that all debts created before the bankruptcy filing are discharged. Discharge destroys any person liability you may have on a claim or debt. (Discharge will not destroy liens; liens survive the bankruptcy.)

There are some very significant exceptions to the general rule that all debts will be discharged. As stated above, a creditor can try to have his claim excepted from discharge pursuant to the provisions of 11 U.S.C. 523. If the claim is not discharged, the debtor continues to be responsible for its payment; obviously, this could have severe consequences to the debtor seeking a "fresh start" which is the very purpose of the Chapter 7 filing.

There are ten categories of debt excluded from discharge under 523. These fall into two areas: debts that are not dischargeable due to the wrongful conduct of the debtor and debts that are not dischargeable due to public policy.

The debts not dischargeable due to the debtor's misconduct include those created by intentional torts, fraud, larceny, embezzlement, fiduciary violations, and drunken driving. The debts not dischargeable due to public policy include alimony and child support, taxes and customs duties, governmental fines, penalties and forfeitures, educational loans, unscheduled debts and certain debts surviving a prior bankruptcy case. A claim must fall within one of these exceptions to be found non-dischargeable.

To prevail on a fraud exception, the creditor would need to show that there was a false, material representation of fact made by the debtor that the debtor knew was false at the time he made it, made with the intention of deceiving the creditor. Some courts have held that when a credit card is used, the debtor impliedly represents that the debtor has the ability and intention to pay for the goods and services charged. Those courts have therefore found that some credit card debt is non-dischargeable under the fraud exception.

This is not the only potential problem that can arise with credit card or similar debt. 523 also provides that there is a presumption that certain consumer debt created right before filing a Chapter 7 is non-dischargeable. The presumption of non-dischargeability will apply if the debt is a consumer debt for so-called "luxury goods or services" incurred or within 40 days before the filing, owing to a single creditor aggregating more than $500. Further, the presumption of non-dischargeability will apply if there are cash advances made by a creditor for more than $1000 that are extensions of consumer credit under an open end credit plan within 20 days of filing bankruptcy.

Luxury goods and services are not defined by the Bankruptcy Code and the determination of same will be contingent upon the facts and circumstances of each case. I can tell you that courts have characterized such items as a person computer, coffee maker, floral arrangements and three-wheel recreational vehicle as "luxury" items.

Any credit extended based on false financial statements is subject to exception from discharge. Statements made in the financial statements have to be materially false with the intent to deceive the creditor to fall within this exception. Note that a credit application should not qualify as a "financial statement" if it does not require a disclosure of debts.

It is crucial for the debtor to include all creditors in his schedules filed with the court. If a debtor knows of the creditor and does not schedule him, the creditor is denied participation in any distribution; to protect the creditor from this type of problem, the code provides that unscheduled claims may be non-dischargeable.

Debts created by willful and malicious injury will also be excepted from discharge. These types of claims arise from intentional actions by the debtor, done with malice which causes damage. It is important to note that ordinary negligence claims are dischargeable. A plaintiff with a personal injury claim would need to allege significantly more than simple negligence to have his or her claim deemed non-dischargeable in the bankruptcy court.

Not only may a single creditor attempt to have a particular debt found non-dischargeable pursuant to 523. Chapter 7 debtors also need to be aware that, pursuant to U.S.C. 727, upon motion by the trustee or a creditor, the court may disallow a final discharge of all debts, of whatever nature, if the debtor, among other things:

(1) destroys or conceals his property within one year before filing or after the date of filing, with the intent to hinder, delay or defraud a creditor;

(2) conceals, destroys, falsifies or fails to preserve records of his financial condition;

(3) knowingly in a bankruptcy case makes a false account, oath or claim;

(4) gives, offers, receives, or attempts to obtain money, property or an advantage for acting or forbearing to act;

(5) withholds from an officer of the estate records related to his property or financial affairs;

(6) fails to satisfactorily explain any loss of assets; or

(7) refuses to obey court orders or refuses to respond to questions posed by the court.

Finally, the court may dismiss a Chapter 7 case if the debtor:

(1) unreasonably delays the proceedings to the creditors' prejudice;

(2) fails to pay necessary fees or payments; or

(3) fails to file his schedules.

Dismissal may also be justified if the debtor is an individual who has primarily consumer debt and the court finds that the granting of relief would be a substantial abuse of the bankruptcy process. Substantial abuse has been found by courts if the debtor is actually able to pay his debts when due.

(Source)