I filed for bankruptcy and it was the best decision I made
At the height of the financial crisis, there were nearly 1.6 million bankruptcy filings, the majority of which were consumer cases. Almost 10 years later, the annual total fell to less than 800,000. But this change is not only a reflection of economic health. Filing for bankruptcy can be an expensive business– lawyers typically charge over $ 1,000 to file a Chapter 7 complaint – and student loans are difficult to pay off in bankruptcy.
And yet, for many Americans, filing for bankruptcy is not just a viable option, but an option that often proves financially beneficial and gives them a clean slate. We spoke to three people about their reasons for choosing to file for bankruptcy and the impact it has had on their finances. None of them regretted their decision to file a case.
“For most people, it’s just a clean slate.”
“There’s so much stigma around bankruptcy,” says Whitney Reynolds, who filed for bankruptcy five years ago due to rising credit card debt. “But let me tell you, it’s the best thing I’ve ever done for myself. This is the most important decision I have made as an adult. For Reynolds, it seemed like the only way out of what seemed like an impossible situation. Since college, they had accumulated $ 23,000 in credit card debt.
“The problem with credit cards is they’re great,” says Reynolds. “You can buy so many things, and it seems like you never have to pay for them. Then my mother passed away, ”says Reynolds. “I got some life insurance item and we sold his house. So I had money to erase this first wave of debt. But after spending the life insurance money, Reynolds again racked up over $ 20,000 in debt.
It was Reynolds’ father who recommended bankruptcy; he also helped cover the administrative costs. “You hear ‘bankruptcy’ and you think of Donald Trump,” Reynolds says. “There is a lack of knowledge of what this means for someone who earns an average income and who has encountered problems and made mistakes. For most people, this is just a clean slate. They have been out of debt since and now have a credit rating in the 700s.
For young people who find themselves mired in credit card debt, Reynolds sees bankruptcy as a chance to make a fresh start, assuming you don’t own a home or other assets. Going to bankruptcy court and taking the required personal finance courses before and after bankruptcy can also put things in perspective. “It was a little humiliating listening to these people telling stories of failed businesses and medical problems,” Reynolds said. “And then here I am, just an idiot who abused a credit card.”
The experience forced Reynolds to start budgeting properly and making credit cards a little less accessible. “I now have a credit card that currently has no balance,” says Reynolds. “But I literally keep it in a Ziploc bag full of water in the freezer, so I can’t access it just because I might want to order something online. He’s there for a real emergency, when I might not have the money available.
If your debt is something you wake up thinking about, says Reynolds, it’s a sign you should take action. “It’s something that’s just amazing since I filed my case,” says Reynolds. “I have no debt, so I don’t think about it. I might not have a lot of money, but at least I don’t owe any money.
“I live without trying to get into more debt.
Bankruptcy can be a by-product of extenuating circumstances – most often exorbitant medical bills, which would amount to two thirds of bankruptcies. For Robert Gale, divorce was the catalyst. “My ex-wife and I had a lot of consumer debt,” Gale says. “We manage well and make payments; we had never been late on a payment and are making decent money. Then I decided to file for a divorce, and during that process my ex-wife looked at the finances and decided that – she was making less money than me – she wouldn’t be able to pay half. of debt if we divide everything. 50/50 in divorce.
Gale felt stuck in a corner. He feared that his credit would suffer if he declared bankruptcy. But the couple had racked up $ 140,000 in debt for which they could be indebted if they didn’t produce. “Since all the debts were jointly accumulated, if she filed for bankruptcy then all of these creditors were going to come after me,” Gale said. “I was then going to be responsible for 100% of the debt against only 50%. And with my income and where I was, I couldn’t afford [that]. So with all of this information, I thought it was in my best interests to go ahead and file jointly with her.
While they were married, Gale and his ex-wife had a plan to pay off their long-term debts. But going through bankruptcy made Gale much more cautious about taking on debt. “Circumstances change,” he says. “So it definitely opened my eyes and changed my perspective on a lot of different things. Now remarried, Gale says the only debt they carry is their mortgage.
A misconception about bankruptcy, says Gale, is that you lose all of your assets. “I thought we were going to lose the house, the cars, that they would take anything of value,” he says. “This is not quite true for Chapter 7. If you can show that you are able to pay specific debts, you can reaffirm larger debts and continue to pay them.” But Gale acknowledges that the process is complicated and worth getting a lawyer if you can afford it. “I know some people are going to drop off and try to do it all on their own,” Gale says. “I decided to hire a lawyer to take care of everything for me, and I highly recommend him.”
While he doesn’t want to file for bankruptcy, Gale concedes it was to his advantage in the long run. And the credit rating that worried him so much doesn’t seem as important as it once did. “I’m not too focused on my score anymore,” he said. “I live without trying to get into more debt.
“It was really the last resort.
Like Gale, Mopelola Gloria Fagbemi has also filed for bankruptcy in divorce. After her marriage ended, Fagbemi had to keep her finances afloat while providing for her three children. “I kept thinking that I could handle this with the child support, and with my income and the due diligence to pay off my debt and work with all of my creditors,” she says. “But one day I got a payroll garnishment. I looked at the results and realized that I would not survive. This meant that creditors would start deducting money directly from her paycheck to pay off debts she owed – a cut in income she knew she couldn’t afford.
For many people who are considering bankruptcy, a major hurdle is the cost of filing. The average lawyer can cost well over $ 1,000, money a person like Fagbemi just couldn’t give up when they did their first bankruptcy research years earlier. But when she finally filed her case, she did so because she knew it was her best option, even if it meant setting money aside for a lawyer. “It was really the last resort,” she says.
Fagbemi cautions against allowing yourself to be too swayed by those around you who might offer you unsolicited advice, especially in bankruptcy. “I’m part Nigerian, part American, and you’re not supposed to give up,” Fagbemi says. “People will tell you that you can come by and make the payment. They will say not to file for bankruptcy, but they give that advice based on what they believe. You have to think about what is good for you and how you can maintain it, and then make your decision based on that alone.
Correction: In a previous version of this article, Reynolds’ pronouns were unintentionally changed.