The decision to file for bankruptcy is a tough one. I meet with people everyday who have no way to pay their bills but have tried everything to get out of debt without filing for bankruptcy. Some of these people have more debt than they could repay in 2 lifetimes but instead of filing for bankruptcy continue to struggle. The question in my mind is why? I think the answer comes down to a couple of things.
1. I am afraid to file bankruptcy because I will never be able to get credit again.
This is probably the most common reason I hear for not wanting to file bankruptcy. People work all their lives so they can build up a decent credit score and save a little money so they can buy a house or a car. They are afraid that by filing bankruptcy they will never be able to get a loan. They will never be able to get a new home or a new vehicle.
This is not true. A couple of items effect a person's ability to get a loan. A bank will typically look to your credit score and your debt to income ratio to determine your eligibility for a loan. A Chapter 7 bankruptcy will most often improve both of these areas. Your credit score will most likely go up and of course your debt to income ration will be greatly improved.
Think of this common example: Bob is a father of 2. He works full time and earns $50,000 per year. His wife works part-time and earns about $15,000 per year. Over time, he and his wife have built up about $20,000 of credit card debt and have had a repossession. They would like to buy a small house in the next two years. When they go to the bank they will not be able to get a loan because their credit score is low. Even if they have been making minimum payments on their credit cards that repossession will lower their credit score to around a 550. To get an FHA loan you need a 635 credit score. Additionally, with the credit cards, they are likely paying out $500 to $700 in minimum payments just to keep them from falling behind. They are in a debt trap.
Chapter 7 bankruptcy will help them. First, all the credit card debt and fees and expenses related to the repossession will be removed. This will allow them to save the $500-$700 per month. Second, because their debt to income ratio has been improved, they will receive offers for new credit so they can start to rebuild their credit history. In two years their credit score should be a 650 or better. Also, if they saved the $500 a month they were spending on minimum payments, they will have $12,000 to use as a down payment on a home. None of this would be happening if they had not filed Chapter 7 bankruptcy.
2. I can't afford to file for Bankruptcy.
This is another common reason I hear for not wanting to file for Chapter 7 bankruptcy. Many attorneys won't tell you exactly how much a bankruptcy case will cost. That makes it hard to plan out how much you need to save. At Wegner Law a Chapter 7 bankruptcy will be $1835 in most cases. This includes your attorney fees and Court costs. My office also has payment plans that are available to you. As I tell clients when they first come in, you are here because you are having financial difficulties. My role to is make this as easy a process as possible. You will be treated with respect. I will be clear about what your job duties are and I will be there to answer questions for you.
I hope that you will feel comfortable giving me a call. I am happy to answer other questions that you may have.
Matthew F. Wegner