Considering Filing Bankruptcy – Here Are Some Hidden Secrets to Assist You

Over a million Americans file for bankruptcy every year. Many people think that filing for bankruptcy will solve all of their debt problems. On the surface it seems that if you file for bankruptcy all of your debt will be eliminated and you can start with a clean slate. Unfortunately it is not that simple. 

To file for personal bankruptcy you must reside in a state for 90 days prior to filing and have a total unsecured debt less than $290,525 or secured debt less than $871,550. Debtors (consumers) who earn less than the median income in their state are entitled to file under Chapter 7 http://www.justice.gov/ust/eo/bapcpa/20101101/bci_data/median_income_table.htm. Debtors who earn more than that and who have the ability to repay at least $6,000 over five years would have to file under Chapter 13, which requires a repayment plan.

You must provide proof that you are unable to pay your bills and have sought additional help in the past. You must provide documentation such as: tax returns, paystubs, bank statements, mortgage statement or rental lease agreements, detailed list of monthly expenses including, a list of all debt, amount owed, interest rates, canceled checks and credit card statements, retirement accounts, business income and debt, and child support. If you decline to provide all the requested documentation required by the Bankruptcy Trustee your bankruptcy filing may be dismissed. Mistakes in your documentation can cause delay or a dismissal.  If you do meet the income requirements there are additional criteria you have to meet such as: 

• You must take a credit counseling class 180 days before filing for bankruptcy.
• If you have enough income to pay some of the debt you may be considered for a Chapter 13 bankruptcy.

The following debt is not included in Chapter 7 bankruptcy: taxes and tax liens, student loans, child support and alimony, debts for fines or penalties to governmental agencies, debts for judgments in wrongful death or personal injury lawsuits, and condominium or townhome association fees. The following debt not included in Chapter 13 bankruptcy: some taxes, student loans, child support and alimony, debts for fines or penalties to governmental agencies, debts for judgments in wrongful death or personal injury lawsuits, debts incurred after filing your case.

To file for bankruptcy you can do it yourself which will cost between $200 - $600 in court fees and filing fees or you can hire an attorney which will cost between $1,000 - $3,000. Once you file for bankruptcy you will receive a slew of credit cards offers in the mail because companies receive alerts on recent bankruptcy filings and want you to get in debt again so they can make money off of you. If you file for bankruptcy it remains on your credit report for 7 to 10 years.  

Although it is true that after you file for bankruptcy you can purchase a house or a car or apply for a credit card, what debtors don’t realize is that you will be offered a high interest rate due to filing bankruptcy which can lower your credit score by up to 200 points. It can take up to 5 years before you can achieve a good credit score. Here are 3 tips to ensure approval of your bankruptcy filing:

1. Do not make any large purchases before filing because this will decrease your chances of being approved.
2. Don’t transfer credit card balances or make payments on any debt because this may decrease your chances of being approved.
3. Don’t apply for any loans or open any new credit accounts.

To “B” or Not to “B”: Bankruptcy That is the Question

Bankruptcy is like putting a bandaid over a wound. The wound goes away but if you fall again and hurt yourself you will need another bandaid.  Over a million Americans file for bankruptcy every year.  To file for personal bankruptcy you must reside in a state for 90 days prior to filing and have total unsecured debt less than $290,525 or secured debt less than $871,550.  Americans who earn less than the median income in their state are entitled to file under Chapter 7.

Approval depends on your salary and the family size.  Income limits are based on the state you live in www.justice.gov/ust/eo/bapcpa/20101101/bci_data/median_income_table.htm. 

Those who earn more than the median income and have the ability to repay at least $6,000 over 5 years would have to file under Chapter 13, which requires a repayment plan. You must attend financial counseling 180 days before filing for bankruptcy.  

To file for bankruptcy you can do it yourself which will cost between $200 - $600 in court fees and filing fees or you can hire an attorney which will cost between $1,000 - $3,000.  You must provide proof that you are unable to pay your bills and proof that have sought additional help in the past.  You must provide documentation such as:  tax returns, paystubs, bank statements, mortgage statement or rental lease agreements, detailed list of monthly expenses including, a list of all debt including judgments and tax liens, amount owed, interest rates, canceled checks and credit card statements, retirement accounts, business income and debt, and child support.  

Once you file for bankruptcy you will receive a slew of credit cards offers in the mail because companies receive alerts on recent filings and want you to get in debt again so they can make money off of you.  If you file for bankruptcy it remains on your credit report for 7 to 10 years.    

Bankruptcy should be a last resort.  Sell any assets, sell new or unused items, adjust your tax withholdings for six months and then set back to your original withholdings.  You can rent out a room in your home or downsize or downgrade your car or home for a cheaper one.    

The alternative solution is to reduce your monthly expenses by 30-50%, create a budget, get a part-time job or go to back to school to increase your salary.   Here are 5 tips to consider before filing for bankruptcy:

1. Do not make any large purchases before filing because this will decrease your chances of being approved.
2. Don’t file Chapter 7 bankruptcy if your income exceeds your expenses.
3. Don’t transfer credit card balances or make payments on any debt because this may decrease your chances of being approved.
4. Don’t file your tax return if you expect to get a large refund because it will be assumed your refund can be used to pay down debt.
5. Don’t apply for any loans or open any new credit accounts. 

Here are 8 ways to increase your credit score after your bankruptcy is discharged (approved):

1. Open a secured credit card account.
2. Open a department store credit card with a small limit of $300 - $500.  Purchase a small item each month for 6 months and pay the balance in full each month to establish a payment history.  
3. Use a debit card or get a prepaid credit card to make purchases.
4. Work with banks that have programs for people with bad credit such as BB&T, Bank of America, Household Bank, Wells Fargo.
5. Open an online bank account.
6. Open a checking with Account Now  www.accountnow.com.
7. Use banks that don't use ChexSystems http://chexsys.tripod.com/goodbanks.html.
8. Open a bank account with a credit union. 

Bankruptcy Doesn't Help As Much As You Think

One of the biggest myths is that if you file for bankruptcy you will be financially free and no longer have debt problems. Wrong! Bankruptcy is not the cure-all for getting out of debt. Over a million Americans file for bankruptcy every year. One in every 73 households files for bankruptcy. In 2005, 2 million Americans filed for personal bankruptcies. Millions of Americans are in debt and get in debt every year. Many people think that filing for bankruptcy will solve all of their debt problems. On the surface it seems that if you file for bankruptcy all of your debt will be eliminated and you can start with a clean slate. Actually it is not that simple.

To file for personal bankruptcy you must reside in a state for 90 days prior to filing and have a total unsecured debt less than $290,525 or secured debt less than $871,550. The new bankruptcy law that went into effect in October 2005 states that debtors (consumers) who earn less than the median income in their state about 80 percent of those who file for bankruptcy still would be entitled to file under Chapter 7. But those who earn more than that and who have the ability to repay at least $6,000 over five years would have to file under Chapter 13, which requires a repayment plan.


Although it is true that after you file for bankruptcy you can purchase a house or a car, what people don’t realize it that the interest rate that you will be given will be very high. Also, based on the new bankruptcy law implemented in October 2005, it is harder to file for bankruptcy and depending on the type of bankruptcy granted it will remain on your credit report for seven to ten years. This greatly lowers your credit score and it will probably take about 3 to 5 years before you score increases due to the bankruptcy filed and provided that you don’t get into any further debt.

Consider what would happen if you neglect to make a payment on the repayment plan which is created by your local court house. If you miss a payment on your repayment plan your case will be dismissed and you will have to find a way to pay your debts on your end.

When you have financial problems and can’t see any way out bankruptcy looks like the best option but there are many other options available to you. If you have a house you can take out an equity loan to pay your debts, you can reduce your expenses and create a budget for yourself, you can get a part-time job, go to school and further your education and get additional training related to your particular job, setup payment plans with your creditors or sell some of your assets if you have any. Use If you do not receive a steady paycheck or have your own business one month or for several months you may not earn enough money to pay your monthly chapter 13 reorganization payment. Only use bankruptcy as an absolute last resort any only if you have a steady job. You need to have steady employment for the Chapter 13 reorganization plan. Good luck!

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