There are many bankruptcy lawyers out there.  Make sure you find one that you are comfortable working with, one that can explain the bankruptcy law in plain English.  You should find a bankruptcy lawyer who is sympathetic to your situation, and not just a regular “paper pusher”.  Some bankruptcy lawyers do not care about their clients as individuals, but rather just as another set of paperwork that needs to be filed.  You should have a comfort level with your bankruptcy lawyer because you want to be able to call him or her anytime if any question arises regarding your specific situation.  You want your bankruptcy to be a “friend” to you, to help and guide you through this difficult situation.

What My Bankruptcy Lawyer Did For Me

• Helped me filed all the necessary paperwork
• Guided me with “selecting” the “more lenient” trustee
• Helped me determine what are exempt and non-exempt assets
• Helped me interpret all the legal mumbo jumbo

It has been 1 ½ year since I have filed for bankruptcy protection.   But the beauty of having procured a bankruptcy lawyer is that I can always call on the bankruptcy lawyer if I have some questions on my particular situation.  It was just last month that I received another letter from the mortgage company that had the lien on the house I had given up for foreclosure.  The mortgage company was ready to start the foreclosure proceedings in the court of law.  Even though I had a clear idea what the legal document is conveying, it was still nice to be able to get the reassurance of the bankruptcy lawyer who then explained the entire process to me.  If I didn’t get a bankruptcy lawyer to handle my case and filed the bankruptcy on my own, I would have to do my own interpretation of the law.  To me, it was just a better that I seek the help of a professional bankruptcy lawyer to handle my case.  Granted, it cost me about $3,000 to secure this bankruptcy lawyer, I would say that it was still money well spent.

Step 1 before filing personal bankruptcy

Take your time and figure out all your expenses and outstanding debt, ideally down to every single dollar.  This is important because you must know your financial situation before making a life changing move such as filing bankruptcy.

Step 2 before filing bankruptcy

Once you have a clear picture your monthly expenses, and knowing your monthly income, you should be able to get a good idea if you can “afford” your expenses.  Let me give you some simple examples:

Ex #1.  You have $2,000 monthly expenses, $10,000 in debt and $3,500 monthly income.

This is not a good candidate for filing bankruptcy.  If you are earning $3,500 a month and you have $2,000 in expenses, then you have over $1,500 leftover which you can use to pay off the debt.  Even if you just pay off $1,000 per month, you can pay off the $10,000 debt in less than 1 year.

Ex #2.  You have $2,000 monthly expenses, $100,000 in debt and $3,500 monthly income.

In this example, this is a “good” example if you choose to file for bankruptcy protection.  Given that you have $1,500 to spare per month, it will take you over 66 months or about 5 1/2 years to pay off the entire $100,000.  And this means that you cannot have any other expenses during this 5 1/2 year period.  This means that you cannot take an unexpected vacation, or have any accidental breakdown of your car which will require money to be repaired.

Step 3 before filing bankruptcy

Once you have determined that filing bankruptcy is your best option financially, make sure you are prepared for the emotional aspects of doing so.  Note that you should be prepared to deal with emotional “scars” such as:

• Bad credit score
• Bad credit history
• Emotional stress of not having any credit

I found myself in this situation after filing for bankruptcy.   I was left with bad credit score and credit history.  With that, it means that I will not be qualified for any kind of loans in the near future.  And even though I now know what I have to do financially to get myself back into a favorable position, it is still disheartening sometimes knowing you cannot afford that extra $500 of expense, for anything that you have been “dying” to buy.

Step 4 before filing bankruptcy

Once you have made up your mind that you are filing bankruptcy, you should  look for professional assistance to do the actual bankruptcy petition.  It is true that there are computer software that you can purchase that can help you with the bankruptcy filing, but I personally would not trust such an important event in my life to a computer program.  I would want to talk to a professional and qualified bankruptcy lawyer who will be able to guide me through this difficult time.  By using a bankruptcy lawyer, he or she will also be able to help me determine what I will be able to keep post bankruptcy process.  I find that having the expertise of a bankruptcy lawyer during the pre bankruptcy and post bankruptcy process helps me a lot through my transitional period and eased my anxiety and gave me the peace of mind.

What Is Debt Consolidation?

The premise behind debt consolidation is so simple that everyone should be able to do it himself or herself. If you are currently paying various credit card debt such as American Express, Capital One and Chase credit card, in addition to the various store credit cards such as a Sears store card along with a Home Dept store card. The entire balance of all 5 credit cards might add up to $40,000. Instead of keeping track of 5 separate monthly payments, the idea behind debt consolidation is to lump all 5 credit card payments into 1 payment. By doing so you will have an easier time to track your outstanding debt balance and eventually be able to pay off the one consolidated loan. The way to achieve this is to get a line of credit (either through a home equity loan or another credit card) that will allow you to consolidate your other debt obligation, then it makes sense to do so. But honestly speaking if you are already in serious heavy debt, it is quite unlikely that you have the ability to get a line of credit big enough that will allow you to pay off all your other credit card bills.

You should be wary if you choose to hire a debt consolidation company. Many people were duped into thinking that all debt consolidation companies are legitimate. If you search the Internet, you will find many horror stories of people who have paid 10-20 payments to consolidation companies just to find that their original debt still exist when they should have become debt free by then.

What Is Debt Reduction?

Generally speaking, debt reduction is the idea that you will negotiate with the creditors to reduce the amount that is owed to them. For example you owe Chase credit card $30,000. You can try to negotiate with Chase to lower the full amount from $30,000 to $20,000. In my own experience, there are some credit card companies who will be willing to do this type of transaction, but there are conditions that will need to be satisfied. Credit card companies know that the economy is still stagnant, and many people just do not have the means to pay back all the debt. The credit card companies would rather recoup a portion of the money that is owed to them than to lose everything if the credit card holders file for bankruptcy protection.

Debt reduction is quite commonly done depending on the credit card company’s financial situation. I know of people who had their Discover cards’ balance reduced by as much as 60% – 75%. Other companies with stronger financial backings such as Chase JP Morgan are usually more stringent in their debt reduction program, even if they decided to offer you one.

Take Your Time And Do Your Research Properly

If you can be assured that your credit history and credit score will not be affected during and after the debt consolidation or debt reduction process, then you should definitely not consider filing for bankruptcy. If this debt consolidation or debt reduction process will still hurt your credit history and credit score, then it just makes perfect sense to seek for bankruptcy protection. At the end of the day, if you have chosen to file bankruptcy, you will literally become debt free overnight and will never be obligated to pay back the creditors. Why would you want to put yourself in a situation where you will still need to payback the creditors for months or years, without any real benefits? You can take the money that you will be using to pay back the creditors and save it as a “starting point” for your financial rebuilding. You should even seek the counsel of a bankruptcy lawyer, who generally offers a free initial consultation. Get all the facts straight, whether you are looking to file for bankruptcy protection, or to hire a debt consolidation/debt reduction service provider.

Why You Should Not File For Bankruptcy

If you actually have the means to payback your creditors in reasonable amount of time, then I strongly believe you should consider paying off your creditors and not file for bankruptcy protection.  Talk to your creditors and work out a deal.  Tell your creditors that you can pay them 50 cents on the dollar, hence cutting your debt obligation by 50%.  Tell your creditors that you have limited funds to pay them back and the last thing you will want is to resort to filing for bankruptcy protection.  Generally speaking the creditors, in this economic situation, will be happy to take 50% of the debt that is owed to them than nothing at all.  Before you call your creditors, have a number in mind that you want to negotiate with the creditors.  If you think you can pay for 75% of the debt, then start out by asking to pay back only 50% of the debt.  It is a negotiation, and the creditors will try to retain as much payback as possible.

Ideally if you have the means to pay back (even if it is just a portion of the debt that you owe) the creditors, you should try as much as possible to pay back the creditors.  The consequence for filing bankruptcy is that you will have the record that you have filed for bankruptcy for the next 7-10 years in your credit history.  Having the mark that you have filed for bankruptcy means that you will have poor credit history and poor credit score for an extended period of time.  It is true that you can repair your credit history and credit score, but it is a long and tedious task which require a lot of time and dedication.

Benefits Of Filing Bankruptcy

If you have so much debt that it will literally take you 5-10 years to pay back the creditors, then you are a good candidate to file for bankruptcy.  The simple reason is that the time it takes you to payback the creditors, you are already in danger of ruining your credit report and credit history.  If that is the case that your credit report and credit history is inevitably damaged, why not save yourself the headache, and money of course, and file for bankruptcy.  Since you will need to find a way to repair your credit, and you can “save” the money that you are planning to use to payback the creditors, it will turn out to be a “win-win” situation for you if you are in such dire financial situation.

Essentially once you have filed for bankruptcy protection, the creditors are legally required to stop hounding you for the repayment of the debt until the ruling of the bankruptcy court.  When and if your bankruptcy case has been approved, the debt that you have listed in your bankruptcy petition will be fully discharged, meaning totally wiped out, which means you will never have to pay back the creditors.  This is also a good way for you to start out fresh financially without having any debt having over your head.

Is Filing Bankruptcy A Good Idea

Hence we have finally come back to the main topic of this blog piece.  Filing bankruptcy can be a good way to get rid of the heavy debt you have put yourself into.  But there are definitely situations that filing bankruptcy is not the most ideal solution for your particular situation.  Your best option is to talk to a bankruptcy lawyer to get all the pros and cons if you choose to file for bankruptcy protection.  Filing bankruptcy is a life changing event and should never be taken lightly.  Almost all the bankruptcy lawyers have free initial consultation which will allow you to get all the necessary information you will need.  You have nothing to lose by talking to a bankruptcy lawyer to find out what you will be facing whether you are in the pre bankruptcy phase, or the post bankruptcy stage.

The misconception that one will be financially ruined after filing bankruptcy is just not true.  In fact, most people who had gone through the Chapter 7 bankruptcy discharge or Chapter 13 bankruptcy discharge are considered by the credit bureaus better risk than those who still have a ton of debt.  Given that fact, you will be able to get that credit card offer almost immediately following your bankruptcy filing or discharge.  I am the perfect example of this.  Not 2 months after filing for bankruptcy, I received an offer from Capital One for an unsecured credit card.  Granted, the limit on this card was only $750, but this gives me a chance to rebuild my credit.  Having a low credit limit on the credit card definitely reminds me of what got me into trouble initially.  I now know how to live within my means and NOT just charge expenses on the credit card because the limit on the credit card allows me to.

In the past, you were probably not worried about your credit history, your credit score, or anything related to your personal finances.  This is a major mistake which ultimately brought you into the financial insolvency you have experienced.  Now if you are looking to “rebuild” your life, you have to be vigilant about your finances.  You will need to look to fix your credit report, rebuild your credit history and monitor your credit score almost religiously in order to put yourself in the position to be eligible for a home mortgage.

Why is it important to fix your credit report?

Part of your identity nowadays is your credit report, therefore you need to have this as accurate as possible.  You want to make sure that the Big 3 credit bureaus (Equifax, Trans Union, Experian) are reporting accurately for you.  If you see that something in the credit report is not correct, you want to bring it to the attention of the credit bureaus immediately.  The creditors might not be reporting as often (if at all) hence your credit report can be skewed (for the worst).  Follow the process of the credit bureau in question and look to correct this mistake as soon as possible.  Once you are able to remove the incorrect information on your credit report, you are one step closer to having this creditor drop from your credit report in 10 years if you have filed for Chapter 7 bankruptcy.  Having an accurate credit report means that you will have eventually have better credit score, and better credit score translates into a better opportunity to get a favorable home mortgage.

Why is it important to rebuild your credit history?

As part of your financial rebuilding efforts, besides fixing your credit report, you should also look to strengthen or rebuild your credit history.  Creditors like to see a long history of good credit history, meaning that you use credit responsibly by paying for the credit charges on time and not abusing it.  Some people wonder how anyone can rebuild the credit history if they do not have access to any credit cards?  If you really do not have any credit cards post bankruptcy filing, then look to get a secured credit card.  A secured credit card is one in which you have a prepaid spending limit, and you will never ever be able to spend more than what you have paid for.  By using a secured credit card responsibly, credit agencies will see that you have “turned over a new leaf” and will be inclined to give you future credit allowances, which in turn translate into better credit history.

Why is it important to monitor your credit score?

This is the step that I will encourage you to do at least quarterly.  If you know at all times what your credit score is, then you will know what makes your credit score go up or down from quarter to quarter.  If your credit score continues to rise, that means whatever you are doing is working, and you should continue doing so.  If it dips drastically for the quarter, then review what you have done:  Did you buy a lot of items and hence tapped into the maximum of your credit limit?  Did you continually apply for credit and hence portrayed a habit of excess spending?  Try to avoid those activities that can negatively impact your credit score.

You can get a mortgage even if you have filed for bankruptcy protection

If you are thinking of buying a house by obtaining a mortgage, or even conducting any big financial transaction, you will need to take the above mentioned necessary steps to fix your credit report, to rebuild your credit history, and to actively monitor your credit score.  Once you are able to achieve all the credit rebuilding process, you should be considered creditworthy for that mortgage or loan that you are looking for.  Remember, once you have seek for bankruptcy protection, it does not mean you cannot get any kind of loan anymore.  You will just need to work harder at rebuilding your credit to show that you are a reliable and responsible borrower in the eyes of the lenders.

A good percentage of those who had to file for bankruptcy protection got into this sticky situation because of poor financial planning.  Poor financial planning can include many scenarios.  One such scenario can be if you are buying a house but you really cannot afford it.  For example you are taking home $3,000 per month from work, and you ended up buying a house that you will need to pay $2,000 per month.  It is literally impossible to live off $1,000 per month, if you are spending 66% of your take home pay on just the house itself.  A good rule of thumb is not to spend more than 30% of your income on housing expenses.

Another reason a lot of people ended up filing for bankruptcy protection is when they live outside of their means.  This means that they do not watch what they are spending.  In the past, it has been so easy to get a credit card that people tend to forget that charging on the credit card does not imply that you do not have to pay for the service or merchandise.  Incurring credit charges just prolong the time that you have to pay for the expenses.  It is a useful tool to help you purchase that new TV that you have always wanted.  But you should also be mindful that you can pay for that the TV in reasonable amount of time.  If you really cannot pay for the TV, like most people who had to file for bankruptcy, then refrain from taking out that credit card for this impulsive purchase.

The majority of the people who had to file for bankruptcy tend to abuse their credit cards.  Some of these people’s situation even get so dire that they ended up living on the credit cards.  It is already bad that they cannot pay for the balances on their credit cards, they would make the situation worst by relying their livelihood on the credit card.  Some people would take out cash advance to pay for their daily living expenses such as food.  Cash advance is one of the worst financial transaction one can incur in his or her lifetime.  Not only is the finance rate on the cash advance astronomical, it is simply total stupidity to be basing your livelihood on cash advance.  Some people will justify this action by promising that this is just a one time occurrence.  But we all know better, once they get “hooked” on this type of living, they will always justify using cash advance as a way of living.

For those who are thinking of filing bankruptcy, or have filed for bankruptcy recently, here some advice that should adhere to (coming from a person who had gone through this ordeal):

1. Live within your means at all cost
2. Be religious to follow rule #1 by having a reasonable budget and stick to it
3. Find any way you can save money, saving money can only help you in the future, and not hurt you

You Can Bounce Back From Bankruptcy

Remember, filing bankruptcy should bring your much financial relief.  It is not a means for you to erase all your debt just to accumulate debt once the bankruptcy process has been finalized.  Take this chance given to you and rebuild your life without the massive debt hanging over your shoulders each and every day.  Look at this from the positive side at all times, instead of focusing on the negative aspects of filing for bankruptcy.  If you are uncertain of what is involve in the bankruptcy filing, seek the advice of a local bankruptcy lawyer near you.

Create A Budget And Stick To It

This is easier said than done.  Most people procrastinate doing a budget for many reasons.  Some people just did not know what should be tracked and how and to track it, while other people are just plain ignorant that creating a budget is one of the smartest thing you can do in your life.  Initially when you are creating a budget, track every single expense that you have down to the penny.  Once you see a few months of expenses recorded, you can categorize these expenses into major categories in your budget.  For example the line item for utilities expense can include water bill, garbage collection bill.

The idea behind a budget is to know every single expense you will be incurring.  Once you know that, you will also know how much money you will be taking home each month, you will be able to tell if you have any surplus or if you are in the deficit.  Ideally you will want your expenses to be much less than the money you are making monthly.  If you see that you are spending more than you have (through the use of the credit card charges), you will need to find creative ways to reduce the expenses.  By doing so, you can help yourself to avoid accumulating debt and in the long run avoid any chance of filing bankruptcy again.

Find Ways To Save Money

There are many creative ways to save money, depending on what expenses you are looking to reduce.  For the purpose of this discussion, we will just concentrate on 2 things, food and entertainment.

Save money on food

Undoubtedly you have to buy groceries to feed yourself.  Instead of buying the national brand name products, e.g. Kellogg’s Corn Flakes, buy the store or generic brand.  Kellogg’s Corn Flakes can cost you over $5 for a box, but you can easily find a similar substitute by buying the store brand for less than $4, thus saving you $1+ in the process.  Do not look at this $1+ as chump change as every little savings add up in the end.  If you are looking to avoid being in debt, this is a good way to start because you do not want to find yourself facing bankruptcy again.

Save money on entertainment

If you are a patron of the movie theaters for that latest action movie or comedy, avoid paying the full price of admission.  Ideally if you can wait for the movie to come out on DVD, that is the best way to save.  But if you must see that latest blockbuster, then go to the matinee showing which is generally $2-$3 cheaper.  Also avoid buying food from the concession stand, as the markup on the food is astronomical.  If you need something to munch on, bring your own food.  If you are looking for ways to cut back on your expenses and to avoid any chance of accumulating significant amount of debt and to stave off filing bankruptcy, then do everything you can to reduce or eliminate your expenses.

Use Cash If Possible

If you can change your spending habit to use only cash to buy anything that you need, that is a big step forward to becoming debt free.  If you can only spend $x per month because you are only making $x month, you will never accumulate debt that you cannot handle.  One of the biggest reason many people had to file for bankruptcy is because they are so used to charging their purchases on credit cards.  If you can only spend what you have, then you will not find yourself with a big credit card bill at the end of the month and not being able to pay for it.

Be Smart About Your Money Post Bankruptcy

These are just some of the ways you should look into to save some money.  Remember the old saying “a penny saved is a penny earned”.  You should know by now how easy it is to amass a lot of debt in a short time, and eventually find yourself in so much debt that your only option is to file for bankruptcy protection.  Learn from your previous experience and start your life anew and do not accumulate too much debt in the future.

Just to keep your mind at ease, there is no legal precedent to indicate that an employer can fire you just because you have filed for bankruptcy protection.  There might be special circumstances when an employer can justify letting you go because you had to seek for legal protection when you are in some serious financial abyss.  An example of such can be when you have signed an employment agreement that you will have pristine financial records.  In such situation, the employer has the option terminate your employment because you have broken the legal binding agreement to be financially sound.  Otherwise, there is absolutely no legal reason for any employer to fire you because of your financial plight.

On the other hand, if you are looking for a job in this though economic times, it can mean a different story.  Some employers will perform a criminal and financial background check on you.  Even though employers cannot outright reject your employment with the company based on your bankrupt status, the employers have many options to reject your application without any justification.  For example, if there are 5 equally qualified people (including yourself) vying for the same position.  When the employer runs the financial background check on all the applicants, your report will subsequently indicate that you have file bankruptcy in the past.  There is a higher possibility that this employer will offer the open position to one of the other 4 applicant.

When To File Bankruptcy

If you do find yourself unemployed right after your employer finds out about your bankruptcy filing, consult an employment lawyer, and possibly also a bankruptcy lawyer.  You need legal representation if you are going to challenge your employment status.  Do not get despaired if you had to file bankruptcy protection.  Be positive and believe that filing bankruptcy can only help you in the long run financially.

It also does not matter to the bankruptcy court if you have $1,000 in debt, of if you are $1M in debt.  If you can substantiate to the bankruptcy court that you are unable to pay off this debt, and it is petitioned legally through the bankruptcy documents, just about anyone can exercise his or her civil right to file for bankruptcy.  Look at some of the richest millionaires in this society, for example boxer Mike Tyson, singer Toni Braxton and even real estate tycoon Donald Trump, they all at one point in their career had to succumb to filing bankruptcy protection.

The only determining factor for filing bankruptcy is your ability to pay off the amount you owe, and not how much you make per year, or how much you owe in total.  Do not let outside forces influence your thinking.  You should not feel embarrassed if you need to file for bankruptcy.  Would you rather let your pride stand in the way of a better financial future?  Would you rather be in heavy debt for the rest of your life just so that you can say you had never filed for bankruptcy?  Be rest assured that legally anyone will be allowed to file for bankruptcy protection, as long as it not done willfully to break the law.  You cannot knowingly buying expensive items on credit cards, or take out thousands of dollars from cash advance of the credit card, all the time knowing you have no way to pay for it because you want all the debt discharged once you have filed for bankruptcy protection.  That is the ultimate power of the bankruptcy process, the ability for you to wipe away most, if not all, of your outstanding debt hence giving you a chance to start out with a clean slate.

Filing Bankruptcy Is For Everyone Under The US Law

You should not question if you are eligible to file for bankruptcy protection, but you should really question if you need to file bankruptcy or not?  Filing bankruptcy is a life changing event and should be taken lightly.  You need to consider all the advantages and disadvantages of this consequence.  If you do not know what is involved and what to expect in a bankruptcy process, then you should look for the advice of a qualified bankruptcy lawyer.  A local bankruptcy lawyer should be able to answer all your worries and concern regarding such a life altering event.

Filing bankruptcy is not limited to just companies like the collapse of big financial institutions such as Bear Stearn or Lehman Brothers.  Individuals like you and I can file bankruptcy and there are basically 2 flavors of personal bankruptcy.  The 2 types of personal bankruptcy are chapter 7 bankruptcy and chapter 13 bankruptcy.  To make the determination if you should be filing chapter 7 bankruptcy or chapter 13 bankruptcy, your best bet is to seek the advice of a qualified bankruptcy lawyer.  Since the passage of the amended bankruptcy law in 2005, it has become more difficult for an individual to file bankruptcy than before.  The US Congress has chosen to change the bankruptcy law in order to stop the abuse that many individuals have exploited prior to 2005.  If you are facing severe financial hardship, you should have no issue passing the various criteria to file for bankruptcy.

Even though it is  your legal right to file bankruptcy, you should be aware that there are many implications if you choose to file for bankruptcy protection.  Some basic overview of what you will be facing after filing for bankruptcy include:

• Expect to have low credit score for extended period of time

Once you have filed for bankruptcy, you can expect your credit score to plummet.  Since the credit score range is from 300 (worst) to 850 (best), you should have the mental preparation that you will be in the 300+ range.  This is not the end of the world, you can rebuild your credit over time.  If you take care of your financial health going forward, you can usually bring it back to the mid 600s within a few years.  Here is an article that I have written about keeping a good credit score.

• The bankruptcy record stays in your credit report for up to 10 years

Your bankruptcy record is part of the public record and will stay on your credit report for up to 10 years.  But here is the caveat, whenever you fill out an application, whether it be a job or credit application, it always asked if you have filed bankruptcy before.  It will never ask if you have filed bankruptcy in the last 10 years.   So in essence, even though the bankruptcy record disappears from the credit report, it will never completely disappear from your life.

• There are many assets you possess that can be protected from the creditors

Just because you have filed for bankruptcy protection, it does not mean that the creditors have the “legal” right to take anything that is of monetary value away from you.  In fact, there is the legal term called “bankruptcy exemption” which allows you to keep many of the valuable assets which the creditors will try to recover.  This is a discussion you should have with your bankruptcy lawyer in order to protect your assets.

Filing for bankruptcy is the easiest part of the entire bankruptcy process, but getting the right information and deciding to file is certainly the most difficult decision you have to make.  Do not be nonchalant about this important decision, make sure you have all the right facts.  Talk to a qualified bankruptcy lawyer who can advise you on your specific financial circumstances.