5 Reasons To File Bankruptcy

Do you find yourself thinking about filing bankruptcy more every week? Are you always googling “how to file bankruptcy” or “questions about bankruptcy”? We feel your pain. We understand that deciding to declare bankruptcy is a huge decision and absolutely deserves time and research, but just for today let us make things a tad bit easier on you by giving you 5 quick reasons to file bankruptcy.

1. To get out of Credit Card Debt

As of just a few weeks ago the consumer credit card debt in America reached $800 billion dollars. Credit Card debt can quickly drown people with interest, penalties, and large required monthly payments, but bankruptcy can help! In most cases filing a Chapter 7 bankruptcy can completely eliminate credit card debt. In fact, getting rid of credit card debt is one of the main reasons for filing Chapter 7 bankruptcy in America today.

2. To stop a foreclosure

Since the mortgage crisis of 2008 our country has seen a rapidly increasing number of home foreclosures. If you and/or your family are behind on your mortgage and are worried about a looming foreclosure then you may want to look into filing a Chapter 13 bankruptcy. By filing a Chapter 13 bankruptcy you can halt the foreclosure process and find a way to catch up on those payments you are behind on while staying in your home.

3. To end a garnishment

A garnishment is when the court has agreed to allowed one of your creditors to take a certain portion of your wages directly from your employer before you see your paycheck. Without filing a bankruptcy one of the only ways to stop a garnishment is to pay it off entirely. Filing a Chapter 7 or Chapter 13 bankruptcy immediately stops any garnishment currently on your paycheck.

4. To stop vehicle repossession

In most cities in America a working vehicle is a necessity, so if you are facing vehicle repossession that could truly be detrimental to your finances. Similar to a foreclosure, filing a Chapter 13 bankruptcy will stop the repossession process and allow the debtor time to catch up on past due payments while keeping their vehicle.

5. To avoid lawsuits

What many people do not know is that when your personal bankruptcy is filed the court places a “stay” of protection on you that stops all debt collection attempts against you including phone calls, letters, garnishments, and most importantly: lawsuits. None of your creditors can sue you for a debt while this bankruptcy protection is available.

As you probably know, there are literally dozens of reasons that people find to file bankruptcy. But what really matters are the financial struggles specific to you. Even if none of the reasons mentioned here apply to your situation filing bankruptcy may still be exactly what you need to find a financial fresh start. Start by discussing your situation with a local bankruptcy attorney and ask for their opinion about how bankruptcy could help you and your finances.

The 5 Largest Bankruptcies in US History

Every now and then it’s nice to look at our nation’s history from different angles, but I bet you didn’t think bankruptcy could ever be one of them. Corporations typically file for Chapter 11 business bankruptcy that allows them to “reorganize” their debts in order to more efficiently pay them off. If the reorganization plan is successful then the company can get out debt by selling off pieces of itself to competitors or smaller companies. Below are the 5 largest corporate bankruptcies in US history based upon how much the company was worth when they filed the bankruptcy paperwork with the courts.

1. Lehman Brothers

The current leader in the nations largest bankruptcy race is Lehman Brothers, a global financial services firm that filed Chapter 11 bankruptcy in 2008 despite having a value of $690 billion dollars. They were drastically affected by the sub prime crisis of 2008 and several former employees also blame sketchy business tactics for causing the eventual bankruptcy.

2. Washington Mutual

Also in 2008 the $330 billion dollar bank named Washington Mutual followed in the footsteps of Lehman Brothers and filed Chapter 11 bankruptcy. Before the case was filed many customers of the bank became nervous and began withdrawing all of their funds. The total withdrawal from worried customers totaled 16.7 billion dollars.

3. WorldCom

Several years earlier in 2002 the nation was shaken when its largest long distance phone company WorldCom filed for Chapter 11 bankruptcy. At the time of filing the company was valued at $103 billion dollars, but because of a scandal amongst those in upper management the CEO went to prison and the company went bankrupt.

4. GM

The most recent bankruptcy on this list is the 2009 GM Bankruptcy when the failing automaker company was valued at $91 billion dollars. You may remember that to ensure the company didn’t shut down all of their factories for good they relied on a bailout from the US federal government. GM emerged from the bankruptcy in 2010 and is still fully operational today.

5. CIT Group

Another 2009 bankruptcy involved the commercial lender CIT Group worth at the time around $80 billion dollars. Only a month after filing their bankruptcy the CIT Group satisfied all of the courts requirements for the reorganization plan and began selling off parts of their company to satisfy its debts. Today CIT Group continues to improve and rebuild.

Filing bankruptcy affects individuals, families, small businesses and as you can see even the largest businesses in the country. Everyone struggles financially in different ways and in some cases they choose bankruptcy to deal with those struggles. The great thing about the bankruptcy laws is that they allow different types of bankruptcy for different people, organizations, debt limits, and other variables. Whether you are a single person struggling with $5-6 thousand dollars in credit card debt or a multi millionaire struggling with a failing business, going bankrupt may be one of the best decisions you ever make for your future.

How Long Does Bankruptcy Affect My Credit?

This question was probably asked to me over 1,000 times during my time as a bankruptcy paralegal. I attribute the frequency to the negative rumors that continue to surround filing bankruptcy. People constantly hear totally irrational phrases like “bankruptcy takes your credit score to zero” and “if you file bankruptcy you will never get another loan” and they are simply not true. Here are a few of the true facts regarding how long bankruptcy affects your credit:

Bankruptcy remains on a Credit Report for 7-10 years

Once you have credit taken out in your name and under you social security number 3 companies begin tracking what is called a “credit report” for you. These three companies are Equifax, Experian, and Trans Union. Your credit report reflects all credit accounts in your name and their balances, delinquencies, and overall status. When someone files a Chapter 7 bankruptcy in order to wipe away their unsecured debt and their case is completed these three companies are notified by each creditor listed in the bankruptcy paperwork. They are notified to report the balance of the debt as $0.00 and place the word “bankruptcy” as the status for the debt. Depending on the type of bankruptcy you file this will remain on your credit report for 7-10 years.

Bankruptcy doesn’t set your Credit Score to zero

Along with the creation and tracking of your credit report the three companies above are also responsible for compiling your credit score: a number between 450 and 900 that defines the creditworthiness of a person. Ultimately this number tells creditors how likely you are to pay off your debt according to the 3 credit bureaus. When a person files bankruptcy their credit score goes down because they are wiping away debts that they technically did not “pay off”. However, bankruptcy doesn’t drop the credit score down to the lowest possible number of 450.

Bankruptcy doesn’t disqualify you from obtaining new credit

With the reflection of bankruptcy on your credit report and credit score many people think that their chances of obtaining new credit are close to impossible. Fortunately for us that isn’t the case. The good news is that many people say that in just one year after filing for bankruptcy their credit is better than ever before. This is due to positive financial decisions once the bankruptcy is completed. In most cases it takes about 2 years after going bankrupt for a person to obtain a mortgage, and about 6 months for a new car loan.

There are companies that specialize in rebuilding your credit after completing a bankruptcy and they can help you achieve your new financial goals. Think about it this way: if you are considering the option of filing bankruptcy then your credit score and credit report are probably not too great anyway, so the only direction you can go is up! Don’t believe the myth’s, in the long run filing bankruptcy can really help your credit.

How Much Does Bankruptcy Cost?

In most cases if you hire someone to perform a legal service for you then there will be some sort of fee involves. Filing bankruptcy is no different. Whether you hire a bankruptcy lawyer to guide you through the process or attempt a do it yourself bankruptcy, there will most likely be fee requirements. Hopefully this blog will give you some sense of what you may pay if you are considering a Chapter 7 bankruptcy or Chapter 13 bankruptcy in the near future.

1. Court Fees 
As of 2012 the filing fees associated with personal bankruptcy are as follows: $306 for Chapter 7, and $281 for a Chapter 13 bankruptcy. Typically these are mandatory fees that are expected as soon as the debtor (or the debtor’s attorney) files the bankruptcy paperwork. In rare cases the debtor can ask the court to waive the filing fees if they believe it will cause them hardship to come up with the funds.

2. Attorney’s Fees
Each bankruptcy attorney will create his or her own fees generally based upon an estimate of how much work the case will take. In most cases bankruptcy lawyers charge less for Chapter 7 cases because they are over quicker, take less work, and are all around more simple to work on. As of today the going rate for Chapter 7 attorney’s fees can range from $1000-$2000 depending on the attorney, the location, and the specifics of the case. Chapter 13 cases usually cost more because of the sheer complexity that is involved. Sometimes bankruptcy attorneys will allow the bulk of their fees to be included in the Chapter 13 repayment plan that will last 3-5 years.

3. Additional Fees
Although it may seem that the court fees and attorney’s fees are enough already you should always be prepared for bankruptcy to throw a few curve balls. Depending on your case and your attorney you may have a few additional fees. Some of these fees may include the 2 courses that filing bankruptcy requires. These courses can be taken online, over the phone, or in person and are typically between $40-50 dollars a piece. You may also be asked to provide the court with an appraisal of your home or vehicle which could also require additional fees.

Again, the cost of your particular bankruptcy case will depend on many variables so it may be in your best interest to obtain several quotes from local attorney’s so that you can choose the best option for you. Before signing any contract be sure you are aware of what additional costs your attorney will cover and which ones you will be required to handle. Also, pay careful attention to the payment timeline that the attorney requests. Some attorneys want all of the fees to be paid before the case is filed, and others are more lenient. Don’t let the cost of filing bankruptcy scare you from doing something that could truly benefit your financial future.

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