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 Filings Increased in 2008

Due to the financial woes the country has experienced for the past few years personal bankruptcy filings remain high. At the end of September bankruptcy filing rose 30%. From July through September 2008 bankruptcy filings rose 35% or equaled to 292,291 filings.

Personal bankruptcy filings in 2008 totaled approximately 1.1 million and increased 31% from 2007. Older Americans have also filed for personal bankruptcy due to the rising costs of food, gas, and medical costs. According to AARP, personal bankruptcy filings among Americans age 65 or older grew by 125%. The bankruptcy rate of Americans aged 75 to 84 jumped 433.3%. Bankruptcy should be a last resort. Here are 5 ways to prevent filing for bankruptcy.

1. Live below your means. Keep debt to 15% or less of your monthly income. Save 10% of your monthly income, housing costs should be no more than 30% of your monthly income, transportation costs 28% and other expenses 17% to ensure you keep a balanced monthly budget.

2. Downsize. Get a cheaper car or home or buy a condo to save money on housing and transportation costs.

3. Enjoy retirement. You should be debt free and mortgage free during your retirement. If you are not you need to make a plan to move towards being debt free during your retirement.

4. Change your diet. If you are spending hundreds of dollars a month on medical costs and prescriptions it is time to change your diet. Eat more fruits and vegetables. Eliminate junk food, fast food, fried foods and sweets. Eat balanced meals and don't overeat. Try to eat 3 meals a day and eat your largest meal at lunch. Don't eat after 7pm. Start exercising. Contact a nutritionist or get a referral from your doctor to develop a plan to shed those extra pounds.

5. Get help. Contact a financial advisor to map out a plan to help you pay off your debt and enjoy your retirement years.