Tuesday, May 15, 2007

Filing Bankruptcy - Part 3

In October of 2006 I stopped making any more payments to the credit card companies. No sense of paying if I’m just going to file bankruptcy anyway. I could hear the collections calls ringing already.

It cost a few bucks to file bankruptcy I found out, about $700. Here I am broke, with collection agencies hounding on the phone and I don’t have the money to file bankruptcy. I came up with a clever plan to get this taken care of. I knew I had about $3000 coming in tax returns, but that was not going to happen till February or March of next year. The plan was genius but I had to mentally prepare for the collections calls for the next 4 to 5 months.

I have a few words to say about the collections agents. They are annoying!!! Which probably works great for them but I had enough by November. I quit answering the phone. If I try to be nice and answer the phone and nicely explain to them that I am filing bankruptcy, they want the attorney’s name and the phone number. But I don’t have that, I can’t “claim” an attorney until I pay them. So they continue, “I understand that you are going to file bankruptcy but you need to make a payment to get your account current, how would you like to make the payment, we except check over the phone…”. Why would I file bankruptcy if I COULD get my account current? So I quit answering the phone for the next 4 months.

Back to the bankruptcy. It didn't take me long to find out how all this works. A few searches on Google and I had the basics down. I live in Washington state so this may only apply here but you can find out about your state simply by doing a search in Google for "filing bankruptcy in Washington" and substitute "Washington" with your own state.

Basically, there is two ways I could go, Chapter 7 or Chapter 13. Being an individual, these two options are most common.

Chapter 7

The simplest "start fresh" bankruptcy is Chapter 7, this is the one I filed. When an individual files Chapter 7, all the credit debt gets dropped with few exceptions like debt to government, etc. There are some rules to qualify for Chapter 7. Number one thing is, all your income has to equal to your expenses, Anything left over, the court will take it and award it to the creditors. There is also limited amount of personal belongings that you can keep, like if you own a house for instance, you can only keep $25,000 of equity in your primary residence. Any additional real-estate may be foreclosed. A car can be worth up to $5000 and so on. If you don’t own a house, the $25,000 limit may be applied to a car maximum amount. If you are truly unable to pay the debt, Chapter 7 is the easy fix.

Chapter 13

If you do not qualify for Chapter 7 because you own too much personal property or your income is more than your monthly expenses, Chapter 13 is your option. When you file Chapter 13 your debt will be evaluated and depending on how much personal property the court can take and how much money you have left after expenses, the court will setup a plan for repaying the debt. You will have to pay a specific amount every month.

This is just an overview of the bankruptcy options and from this information you should be able to get an idea where you fit in.

If you really do not have any other option but to file you should file Chapter 7, otherwise I would figure out some way to settle with the creditors and avoid the big “Filed Bankruptcy” note on the credit report for 10 years.

If you qualify for Chapter 13, I think there are options to avoid bankruptcy. Sell some property and pay off a chunk of the debt, use the extra money in your income to pay down the debt.

I had no choice, I didn’t own any real-estate property, the pay check from my new job was just enough to pay the bills. I qualified for Chapter 7.

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