GMR 127: Bankruptcy - Why it's not the fresh start you want
You’ve seen the TV commercials about bankruptcy, how they promise filing for bankruptcy will remove your financial burden and give you a fresh start. In this episode of GMR, we share the other side of bankruptcy that those who recommend never talk about. We’ll also give you alternatives to bankruptcy that will help you pay off your debt quicker and with less long term damage.
Show Notes
You have to check your heart when it comes to Bankruptcy, it shouldn’t be about pulling one over on your creditors. If you get into debt, using someone else’s money, there is an obligation to pay that back. You want to maintain integrity throughout this journey. And it is possible to have integrity as you negotiate with creditors and learn about bankruptcy.
Bankruptcy is not something that most people should do. It’s damaging to your finances,
If you handle your creditors yourself, it’s often cheaper, faster, and less damaging long-term.
Sometimes people will be forced into bankruptcy by their creditors.
Credit score will recover quicker if you avoid bankruptcy, even if your debt is settled or negotiated.
Past Getting Money Right Episode to help you manage through your debt
105 - Dealing with Debt
106 - The Right Way to Pay Off Debt
107 - 4 Options for Debt Repayment
108 - Working with creditors to pay off debt
98-99 - Identifying the Root Cause of Financial Problems
34 - Help! I Can’t Pay My Credit Card Debts
35 - Dangerous debt
36-37 - The Psychology of Credit Card
Bankruptcy Statistics
95% of bankruptcies are personal, versus business bankruptcies
60% - file chapter 7 bankruptcy
60% are related to medical debt according to The American Journal of Medicine
60% have incomes of less than $30,000
Average costs
Filing fees are a couple of hundred dollars
Attorney fees typically range from $1,200-$3,500
Repeat filers are responsible for 16% of all bankruptcies
Texas Bankruptcy Process - other states similar
You have to deal with “why” you want to declare bankruptcy? What is your motivation for getting out of debt immediately? Why not slow down and work the process?
Bankruptcy doesn’t clear:
Student loans
Government debts like taxes, fines or penalties
Child support and alimony
Expensive items purchased right before filing bankruptcy like cars, boats, or jewelry
Good reputation - ie. rental approval, potential job disqualification (financial services).
Chapter 13
Chapter 13 means the court approves a plan for you to repay some or all of your debts over three to five years. You get to keep your assets (stuff you own) and you’re given time to bring your mortgage up to date. You agree to a monthly payment plan and must follow a strict budget monitored by the court. This kind of bankruptcy stays on your credit report for seven years.
Chapter 7
Chapter 7 means the court sells all your assets—with some exemptions—so you can pay back as much debt as possible. The remaining unpaid debt is erased. You could lose your home (or the equity you’ve put into it) and your car in the process, depending on what the court decides. You can only file Chapter 7 bankruptcy if the court decides your income is too low to pay back your debt. This type of bankruptcy stays on your credit report for 10 years.
You will also be required to submit a means test form, which determines whether you’re income is low enough for you to qualify for Chapter 7. If it isn’t, you will have to file for Chapter 13 bankruptcy instead.
When you file for bankruptcy, creditors have to stop any effort to collect money from you, at least temporarily. Most creditors can’t write, call or sue you after you’ve filed. However, even if you declare bankruptcy, the courts can require you to pay back certain debts. Each bankruptcy case is unique, and only a court can decide the details of your own bankruptcy.
Resources
Debt tools and other free resources - https://leosabo.com/resources
Online Budget Course - https://courses.leosabo.com/
David’s website - www.stewardshippastors.com