| FREQUENTLY ASKED QUESTIONS ON BANKRUPTCY
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| Is Bankruptcy the Answer?
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The decision of whether or not to file for bankruptcy can be a very difficult and stressful one. It is filled with many uncertainties and often causes considerable anxiety for those who find themselves facing this decision. Clients are sometimes concerned that by filing bankruptcy they will lose everything they have. That is simply not true. In many cases, the client is allowed to keep most if not all of the things they owned before they filed bankruptcy.
As soon as the client's bankruptcy is filed, all bill collection must stop. That means no more annoying phone calls or harassing letters. Bankruptcy can stop repossessions, lawsuits, wage garnishments and foreclosures. Often, the only relief a client can get from the constant pressure of the bill collectors is through a bankruptcy.
Filing for bankruptcy should not be taken lightly and then only should be considered after all other possibilities have been seriously explored.
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The common reason people file bankruptcy is because bad things happen to good people. The economy is in the worst shape it has been in years. People are losing their jobs. Unemployment rates are sky high. Employers are laying off their employees by "downsizing" in record numbers. Huge corporations are filing for protection through the bankruptcy courts. Companies are shutting their doors in the United States and moving their operations overseas and south of the border. In the wake of all of this financial upheaval, people are losing their jobs and there aren't enough new jobs to go around.
Another reason people resort to bankruptcy is divorce. Married couples face a better than fifty percent chance that their marriage will end up in divorce. With the two income family being the standard, neither partner can afford the debt couples typically acquire alone.
By far one of the most common reasons people file for bankruptcy is unexpected large medical bills. Someone in their family is either seriously injured or suffered some major health crisis. The health care industry has priced their services and products far beyond the reach of the average person. More and more of us are uninsured, underinsured or uninsurable. People who are hurt or injured have astronomical medical bills and no way to pay them. Sometimes, bankruptcy is the only way out.
Even though the number of bankruptcy cases filed in federal courts fell in 2004, Congress passed and President Bush signed the Bankruptcy Reform Act into law in April, 2005. As a result, over two million people filed for bankruptcy relief in 2005. Half a million filed in the two weeks before the law took effect on October 17, 2005.
A common and very popular misperception is that only people abusing credit card debt are filing bankruptcies. That is simply not true. Here at the Bankruptcy Clinic, the vast majority of our clients have had something bad happen to them that threw them into a financial downward spiral. They are hard working, honest people that need a fresh start to get their lives back on track.
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What will happen to my credit?
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By the time clients begin considering bankruptcy, their credit is pretty much shot. After a bankruptcy, the client can begin to rebuild their credit rating by being able to make regular on-time payments on new accounts. Credit reporting agencies can report a bankruptcy for ten years after the filing. Clients are concerned that having a bankruptcy will prevent them from ever acquiring credit. That is simply not true. It is true that after a bankruptcy, many lenders will outright refuse to even consider making a loan. Yet, it is possible to get a credit card, to get a car loan, to get federally funded student loans and even to get a house loan. Unfortunately, clients can expect to pay higher interest rates for loans, higher late fees and other such fees. Generally, clients must look harder for lenders who will loan money - but lenders are out there. In fact, many clients begin receiving credit card offers soon after they file bankruptcy. In a relatively short time after filing bankruptcy, clients may be eligible for mortgage loans on terms as good as those with the same financial profile who have not filed bankruptcy. The stability of the client's income and the size of the client's down payment will be much more important than the fact that the client filed bankruptcy. The brighter side of bankruptcy is that with the burden of the oppressive debts removed, the client can slowly and carefully regain good credit.
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