Should I File for Bankruptcy?

If you have overwhelming debt and your creditors are bothering you, everyone you know and their dog about your debt, bankruptcy might seem like a magic wand that will fix all your financial troubles. Bankruptcy also has its shortcomings though and there is no magic formula that is going to tell you whether you absolutely should or should not file. Everyone’s situation is a little bit different. For many, the need and advantage of bankruptcy will be obvious, for others, it will only be a decision they reach after closing examining their property, debts, income, and how persistent their creditors are. For some people, bankruptcy might not even be the right answer. This site is here to help you decide what option is right for you.
This site helps you explore the two types of bankruptcies most often filed by individuals: Chapter 7 and Chapter 13.
Here are some issues or questions you are likely to face:
• Whether you are eligible to file,
• How bankruptcy will affect your credit,
• How bankruptcy will affect your personal life,
• What will happen to your home,
• What will happen to your car,
• What will happen to your essential property,
• Which debts will not be wiped out, and
• Whether you can represent yourself without a lawyer.

Which Bankruptcy Should I File

There are two different types of bankruptcy that you can file – “liquidation” or “reorganization.”
Liquidation bankruptcy is called a Chapter 7 because its rules are in Chapter 7 of the Bankruptcy Code. In a Chapter 7, some of your property might be liquidated (i.e. sold) to pay off some of your debt and in exchange most or all of your remaining debt will get wiped out. An individual can file for a Chapter 7 – this is called a “consumer” Chapter 7 bankruptcy, or a business can file a Chapter 7 bankruptcy – this is called a “business” Chapter 7 bankruptcy. Chapter 7 takes about three to six months on average.
Reorganization bankruptcy lets you pay down your debt over time by letting you devote a part of your income towards paying it off. There are three different types of reorganization bankruptcies:
1. Chapter 13 – this is for individuals only. This usually takes three to five years.
2. Chapter 11 – this is for businesses and for individuals with very large debts.
3. Chapter 12 – this is for individuals whose debts are mostly from the operation of a family farm.

What is Bankruptcy – Will it Work for You?

If you’ve ended up on this site, chances are you or someone you care about has more debt than they can handle. Most likely, your debt blew out of control because of something beyond your control – like a medical problem, job loss, divorce, or the most common – a bad economy. You might be feeling overwhelmed by your financial situation and unsure about the next steps. Maybe a close relative, friend, financial adviser, or even a lawyer suggested that bankruptcy is the best thing in the world for you. Maybe someone else suggested the complete opposite – that bankruptcy is a huge mistake and you shouldn’t do it because it will ruin your life forever.

This site is meant to help you sort through your options and choose the best strategy for you to deal with your debts. Equipped with this information, you’ll be ready to decide whether filing for Chapter 7 or Chapter 13 makes sense for you. Here you will find:
• Some ways to handle your debt problem, outside the bankruptcy system,
• The two different types of bankruptcy options available to consumers – Chapter 7 and Chapter 13,
• How filing for bankruptcy under Chapter 7 or Chapter 13 will affect your home, credit, and property,
• The procedures you’ll have to follow to file for bankruptcy,
• What paperwork you’ll have to complete to file for bankruptcy.
As you sort through all the lines of attack available to you, remember that you’re not alone in this. Last year, 1.4 million Americans filed for bankruptcy, so many more face financial challenges because of the economy that was supposed to have gotten better by now, and thousands of big companies have filed bankruptcy in the last few years. Although bankruptcy filings have dropped since last year, bankruptcy remains a necessary and pervasive part of our economic system. It may be the right thing for you.
Here are the things bankruptcy may be able to help you with:
• Stop creditor collection actions like foreclosure, wage garnishment, or bank levy,
• Wipe out all or most of your debt in a Chapter 7 while still keeping your home, car, and other necessary things, or
• Pay back some of your debts in affordable payments over three to five years in a Chapter 13.

Served! – How Do I Defend a Collection Lawsuit?

Collection agencies often refer delinquent accounts to a law firm when their own collection efforts are going nowhere with you. Many times a collection law firm owns or is associated with the collection agency, so from their point of view, a lawsuit is just another step in the collection process. From your point of view though, it’s a lot more serious than the never-ending phone calls and collection letters.

Being served with a summons and a complaint starts the clock on the court process that can eventually lead to a judgment against you. A judgment against you means that every asset you own could be at risk. The most at risk are things like your regular paycheck, your house, your car, or your bank account. The creditor can take up to 25% of each one of your paychecks to pay off the debt, take everything from your bank account to pay it off, or attach a lien to your house or car.
Additionally, if the creditor gets a judgment against you, it has the right to ask for specific information about what assets you own and where they are. This demand for information is part of the discovery process and you don’t have the option to ignore these requests. If you ignore them, you could be penalized by the court, or even imprisoned.
Needless to say, if you are served with a lawsuit, it is important that you take action immediately.
Here are some options:
1. Answer the lawsuit yourself – many creditors file dozens or even hundreds of lawsuits each week in the hope that most of them go to default judgment (that’s what happens when you don’t answer). Don’t be a statistic. Answering the lawsuit means you WRITE a response to the lawsuit and file it with the court. This should buy you an extra one to three months of time to negotiate the debt with the creditor or look into other options like bankruptcy. Here are some tips for your answer:
a. Make No Excuses – remember that a Complaint is a list of allegations, not proof. Don’t fall into the trap of agreeing to something without proof. An answer full of excuses for why you can’t pay isn’t a defense, it’s an admission that you owe the money for the amount they claim you owe.
b. Demand Proof – ask them to prove to you that they own the debt before you agree to anything. Collection accounts are bought and sold repeatedly, which sometimes means that a collector has no proof that they bought your account or whether they sold it again.
c. Make Sure It’s Legally Collectible – sometimes lawsuits are filed after the statute of limitations has passed. In Washington state, a credit card company can only file a lawsuit within 6 years since the last time any activity was done on the account (this includes making a payment). If they file after this time, it could be a violation of the FDCPA.
d. Check the Balance – you know you owe something, but do you owe what they say you owe? Without a breakdown of interest, fees, and other charges, you can’t be sure that the amount is correct. Demand to see an accounting of every penny claimed before you agree to pay even a cent.

2. Contact a lawyer – of course a lawyer’s blog would tell you this. However, I’m not recommending this one to you. Realize that a lawyer will expect to be paid for their time. Say that your credit card company XYZ sues you for $5,000 and you owe this money, does it really make sense to pay a lawyer $200 to $300 just to look at the lawsuit and then even more to answer it for you? Even if you have a valid reason to challenge it, such as improper notice, you may still have to pay legal fees to the lawyer up front to fight it. A majority of the time, collection lawsuits are demands for money that you actually do owe. You can pay a lawyer to delay the inevitable, but at some point, a judge will make a decision that may not be favorable to you. Through all that, you will have used up money that you did not have to waste.