It’s easy to get bogged down and discouraged when you think that you are the only one dealing with the decision to declare bankruptcy. It may be encouraging to know that some of history’s most successful names dealt with the same struggle you may be dealing with today. Bankruptcies can happen to anyone, and if you don’t believe me just take a look at some of these names.
- Abraham Lincoln: Our revered 16th president fell into overwhelming debt because of a failed general store he opened in 1823. He owed about $1,000 after the store closed and he didn’t have the money so his creditors took him to court and won the right to his last valuable assets: a horse and some surveying gear.
- H.J. Heinz: If it wasn’t for the ideas dreamed up by H.J. Heinz all of our hot dogs, hamburgers, and french fries would be lacking to say the least. The condiment king was only 25 years old when his struggling business failed to sell enough of a horseradish sauce to pay the bills. The company declared bankruptcy in 1875.
- Milton Hershey: America’s favorite chocolatier knew that his candy was great, but unfortunately didn’t quite know how to run a business. In 1882 his first candy shop attempt in Philadelphia fell because he couldn’t cover the expenses any longer. He decided to declare bankruptcy and head back home to Lancaster, PA to try again.
- Henry Ford: Although Henry Ford was a mechanical innovator, even he couldn’t stay away from the financial struggles that come with a failed business. He started his first motor company in 1899 and because of his need for perfection the company had only produced 20 vehicles in a years time. The business owed much more than it made that year and went bankrupt in 1901.
- Walt Disney: Many of us owe countless family vacations and memories to Walt Disney, but at the start of his career he owed his creditors more than he had. Walt Disney opened his first film studio in Kansas City in 1922 and barely kept it alive for a year. After a failed deal with a New York company that promised to distribute his films, Walt didn’t even have enough money to cover his small overhead. The studio ended up going bankruptin 1923.
There are startling similarities between all five of these men: each one struggled financially, each one filed bankruptcy, and each one of them went on to be wildly successful. Although this isn’t a guaranteed recipe for success, it does show that going bankrupt can put you back on track financially. So find the best bankruptcy lawyer for your situation (keeping in mind that there are cheap bankruptcy lawyers available) and ask “how does bankruptcy work?” If you discover that it may be in your best interest to declare bankruptcy, remember that you aren’t the only one to struggle, and you will come out of the process with a fresh financial future.
Although it may not seem like it, financial struggles happen to everyone no matter what they job title is, where they live, or how much money they make. The truth is that no one ever plans to file bankruptcy, but if debt becomes overwhelming it may be one of the only available options. Just ask one of the 90’s most popular R&B singers Toni Braxton, who has now filed for bankruptcy twice in the past 15 years. How does bankruptcy work for an award winning and apparently wealthy musician? The same way it can work for you.
The 1990’s gave Toni Braxton a critically acclaimed international tour, 5 Grammy awards, and unfortunately her first Chapter 7 bankruptcy. Many close to her said it was due to her extravagant lifestyle and spending habits, but she told the press that it was due to a myriad of circumstances including her record label not compensating her well enough and the unforeseen costs of show business. No matter what the cause, Toni Braxton’s 1998 bankruptcy reported $3.9 million dollars worth of debt and caused the court seized the majority of her household possessions and awards to pay off as many creditors as possible. According to the Public Access to Court Electronic Records Braxton’s 1998 bankruptcy was “dismissed or settled without entry of judgment” so whether or not she was freed of her debts is unknown.
More recently, in 2010 Braxton once again filed for Chapter 7 bankruptcy relief in the California federal court, this time listing more than $50 million in debt. Unlike her previous bankruptcy the courts records show that this case was discharged normally on 8/26/2011. A discharge means that the Chapter 7 bankruptcy was completed and successful in wiping away all qualified unsecured debt.
You may be wondering how someone who was making millions of dollars off of hit records and sold out tours was eligible to have their unsecured debt (like credit cards and medical bills) completed wiped away. The answer lies in a system of equations known as the bankruptcy means test. Put simply, the bankruptcy means test is a way to determine which Chapter of bankruptcy an individual qualifies for by deducting necessary monthly expenses from overall monthly income. Both times Toni Braxton filed for bankruptcy the court used the means test to determine that her expenses outweighed her income each month and that she was entitled to Chapter 7 relief.
So whether you are in the early stages of looking for a cheap bankruptcy lawyer, or you have already found the best bankruptcy attorney for your situation, remember that you aren’t alone! Hundreds of thousands of Americans from all walks of life file bankruptcy every year, and as you can see from Toni Braxton some people even need bankruptcy help more than once to completely ensure a financial fresh start. Filing bankruptcy is nothing to be ashamed of and may be the option you and your family need to consider if you continue to be plagued by debt.
One of the most common myths about claiming bankruptcy is that it will ruin your credit forever. That is just absolutely not true, and in fact more people have better credit scores 1 year after filing for bankruptcy protection than they ever had before. The truth is, bankruptcy will stay on your credit report for a certain number of years, but it does not stop you from rebuilding your credit once your case is discharged (or completed). So what are some of the ways you rebuild your credit after claiming bankruptcy? Here are some suggestions:
- Secured Credit Cards: Secured credit cards are a great way to rebuild credit because you essentially set your own credit limit by depositing a certain amount onto the card and only spending what money is available. The opening deposit on secured credit cards range from $300-$1000 dollars depending on the financial institution you choose. Using a secured credit card reports positively on your credit and in some cases after several months of good standing the bank may even extend your credit limit without another deposit, or convert your account to a regular credit card.
- Stay Current on Everything: Bankruptcy help can take care of most unsecured debt, but most Americans have several secured debts that require monthly payments that bankruptcy does not wipe away. Some of the most common secured debts include mortgage, car note, utilities, and student loans. It may seem like common sense, but it is imperative that you make on time payments on these items each month to start generating positive credit again. Bankruptcy attorneys will tell you this more than you want to hear, but it is one of the keys to making sure you don’t become vulnerable to claiming bankruptcy again.
- Store and Gas Credit Cards: Obtaining credit cards from grocery stores and gas stations that you frequent is also a good way to rebuild credit. In most households today groceries and gas are necessities, so you know about how much money you typically spend. The key is to use the store or gas card at the register, but immediately pay it back once you get home so you are not misled by how much you have left in your checking account. By using that method, your credit card companies will report positively to the credit bureau while you are merely spending the same money you would have in months before.
Ultimately, if claiming bankruptcy was a decision you truly needed in the first place then your credit was probably not at the top of its game so the only place you can go is up! Be sure to discuss how to rebuild your credit with bankruptcy attorneys throughout the process. By making positive financial decisions, like the ones listed above, after your bankruptcy discharge you can ensure that your once sore credit will soon be on the rise. Just remember the post bankruptcy basics: make payments on time every month and don’t spend more money than you are making.
Ready to file bankruptcy? You should be aware that the state you live in might have an affect on certain aspects of your case. Although the various types of bankruptcy are all filed in the federal courts and governed by federal law, there are specific Chapter 7 and Chapter 13 bankruptcy rules that are specific to each state. When you are searching for bankruptcy help you will want to make sure that whatever attorney you choose is familiar with your particular state bankruptcy rules. So how does bankruptcy work from state to state? The specific state bankruptcy rules are called “exemptions” and they differ from state to state due to a number of variables.
Exemptions are essentially rules that give the value of certain items that the state will allow a person filing bankruptcy to protect. Commonly “exempted” items are equity in real estate and/or vehicles, household items, and personal items. For instance, in Illinois the state exemption for equity in real estate will protect $15K for a single filer, and $30K for a joint bankruptcy. Any equity that exceeds the exemption amount is ultimately unprotected and could be liquidated by the bankruptcy trustee. If you are worried about the equity in your home being a potential problem, do the math yourself by subtracting the current fair market value of your home from the balance you owe on your mortgage. If the difference is a positive number, then make sure to either ask a bankruptcy attorney, or do your own research to look closely at your state’s equity exemptions.
The state exemptions also differ due to the how the state and its residents generate revenue. For example, in Texas there is a state exemption for livestock and crops, but you would not find anything like this in Rhode Island or New York because farming is not a major source of revenue. In Hawaii there is a specific exemption for fishing boats and nets, but in a landlocked state like Arkansas that sort of an exemption is unnecessary. The exemptions were created this way to give the most bankruptcy help possible to the citizens of each state, having a general list of exemptions would not have done this.
Sometimes the state bankruptcy exemption amounts differ because of the cost of living and median income. In Maryland, where the median household income is well above $60K the bankruptcy exemptions protect up to $6K in personal property. This is a vast difference from a poorer state like Alabama where the median income is much lower so the exemption amount for personal property is only $3K. Again, because these state exemptions are so specific, it is absolutely vital that you find a bankruptcy attorney who not only understands the different types of bankruptcy, but also understands how the different exemptions work with each type.
State bankruptcy exemptions are all unique, but so is your bankruptcy case.; in fact, knowing more about your state’s exemptions should give you confidence that there is protection available for your property.