I filed.
My wife and I had some credit card debt, and I had a car loan. Nothing we couldn't handle, but then I got hit with a lawsuit (which I won't be going into), and the legal fees murdered me. I had to keep making cash advances on credit cards to pay the lawyer, and when it was all over, I was way too far into the red to pull myself out. We kept paying all our minimums, and try to put a little extra on a card whenever we could, and everytime we started to make any headway at all, one of life's little emergencies (car repair, dental work, etc.) would knock us back down again. After enough months went by, we took a good hard look and saw that we had actually lost ground, even though we were really trying. We decided we could keep fighting, and:
a) eventually gotten better jobs and started to gain some ground, and finally gotten it all paid off in 20 years or so;
b) never have gotten any better, just stayed broke forever;
c) slowly and steadily lost ground until we couldn't even make the payments anymore, and got forced into bankruptcy anyway.
Or we could quit fighting and file bankruptcy.
We wanted to have children someday before we were 50, and not raise them in the grungy welfare trailer park, so we filed, Chapter 7.
I'm not proud of it, but I have to admit, it really has worked out well. My bankruptcy was filed in April of 1999, and in 2002, I bought home (or at least, I bought a mortgage). For a little over a year now, I've owned my own business. Our daughter is two, and doesn't know what a trailer is. We have almost no debts outside of our mortgage, the cars are paid for- there's a little on a credit card from a plumbing disaster we just had, but we'll pay that off over the next two months. If we had never filed, I believe we'd still be renting, still be in debt, and I don't know if we'd have ever felt financially comfortable enough to have had our daughter.
Secrets to surviving bankruptcy: It's a black mark on your credit, no way around that. But, it hasn't destroyed our finances like some people say it will. (Disclaimer: BK laws differ from state to state; everything I say may not apply where you are. Also, I'm not an attorney, and could be flat-out wrong, but this is the way I understand it to be.)
First, have a good reason! The law will allow you to file for any reason, or none at all- but after it's done, and you're trying to re-establish credit, potential lenders will ask you why you filed. Medical bills, Divorce, Lawsuit, etc. all sound a lot better than "I spent more than I had."
Second- I did NOT discharge my auto loan in the bankruptcy. When you file, you can "re-affirm" any debts you do not wish to charge off in the bankruptcy. This may seem silly; if you're going to cancel your debts, why not cancel ALL your debts, right? Nope! Continuing to pay on some stuff looks really good to potential lenders in the post-BK world.
Third, we both kept a credit card. If you have a zero balance on a card, or if you choose to "re-affirm" the debt on a card, you may be allowed to keep one or more cards. I think we were both allowed to keep one zero balance card. Then, after the BK, use it and pay it off each month, or leave it with a small ($1.00?) balance. Just use it to buy gas, or something else that you usually pay cash for. (Somebody told me that charges made on cards kept through a BK filing would no longer affect my credit score, but SOMETHING made it go back up.) Plus, even if it doesn't directly affect the score, it still shows on your credit report that you have the card, and are using it responsibly. (assuming you are using it responsibly!!) This looks good to potential lenders.
At some point, credit card offers will start to come again. Lots sooner than you think. The credit card companies really want to deal with you, as you're actually a really good risk for them now- you're known to have no debts, and after you file, you can't file again for a number of years (7? 10?), so they know you won't bail on them. The terms will be lousy, but take one anyway, and use it just like the one you kept through the BK, which you can cancel now. PAY IT OFF EVERY MONTH! You don't want to pay any interest, and you don't want to dig yourself a new hole, either. Pay everything off every month, or carry a $1.00 balance, just so your credit report shows you sometimes carry a balance. Creditors like a customer who carries a balance, as that's where the make their money. If you NEVER carry a balance, you're no good to them.
Fourth, after a year or two, when you're earning some $$ again, buy a cheap-o used car from a used car lot. Really, really cheap, like so cheap you could just as easily save up and pay cash. Make sure it's mechanically sound, and negotiate a fair price. Tell them you'll be using their (outrageously expensive) financing. This makes them a little more flexible on the price, as they know they'll be making some $$ on the financing as well. Especially when they run your credit, and see that you only qualify for the "High-Risk" financing option, the one where they charge you more interest than the loanshark Rocky Balboa used to work for back in Philly. Then, you avoid the interest by paying it off over a few months, maybe you have to sell that nice car you kept through the bankruptcy to make tht happen, but an auto loan paid off early looks good on your credit report, and gives it some depth, beyond that credit card you've been using at the gas station.
If you keep your nose clean, and actively work to establish credit, you'll be mortgage-able in a few years. You'll pay a little higher rate than non BK people, but if you've built a good enough credit score, it won't be so bad, especially if you can get an FHA loan (I did).
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Topic: Bankruptcy now... or never??? (Read 4876 times)
