Author’s Note: This post has been updated and continued with further explanations of bankruptcy laws and how they can impact you. To see the continuation, please click the link at the end of this post.
I cannot tell you how many times per week I speak to someone so distraught about their present financial and credit situation who mistakenly thinks that an option or perhaps, their only option is to file bankruptcy. Bankruptcy laws changed drastically a number of years ago in favor of your creditors, not you. Let me just say that bankruptcy, well uh, like the old grey mare, she ain’t what she used to be.
Bankruptcy Laws Were Changed
………..and not in your favor
So, I wanted to take a moment and provide you a few pointers to help guide you on your path in case this is something you are considering. In the good old days, a Chapter 7 bankruptcy pretty much provided carte blanche access to be able to completely wipe the slate clean and start fresh. Not so anymore in most cases. You see, what they did was change it so that they take a 6 month snapshot of your income to determine if you really CAN afford your payments and are choosing not to. What that means is that if you are a W-2 employee and have a documented track record of income, in many cases, the bankruptcy trustee will not allow the filing and require you to convert it to a Chapter 13 Wage Earner plan so you can repay all of your creditors over a multi-year time frame. This has the added benefit of now placing not one, but two, bankruptcy filings on your credit report AND that added insult to injury of staying in debt and having the federal government involved in your life for the foreseeable future.
Doesn’t sound like the American dream, does it?
In its present form, Chapter 7 bankruptcy filings are generally for self employed individuals, the chronically unemployed, the disabled who has yet to begin receiving benefits, the recently divorced and generally those who can prove insufficient income for the prior 6 months.
And, here’s the best part. If you understand current credit laws, in 99% of cases, bankruptcy isn’t even necessary and does more damage than good.
Let me put it another way, why file bankruptcy if you can legally eliminate the debt and get the derogatory item removed from your credit report with one simple letter?
In most cases, people are over burdened with compound interest credit cards and other nonsense.
I cannot state this emphatically enough, if you understand credit and credit repair law and the fact that you can get most debt legally eliminated and removed from your credit report, bankruptcy serves one purpose and one purpose only:
Future Asset Protection
What does that mean?
It means that the ONLY reason you file bankruptcy is to avoid and eliminate litigation (lawsuits) that you could lose whereby if you are a W-2 wage earner your wages could be garnished and/or future earnings attached (like when you win the Powerball).
In most cases, people are so afraid of being sued that they file bankruptcy prematurely and unnecessarily. Let me give you some real world examples:
A former client recently went through some very hard times and was seeking my advice on whether or not he should file bankruptcy. As I went down the list, he had no verifiable assets (i.e., nothing to lose or protect) and he wasn’t being sued. I asked him what he thought the bankruptcy was going to do to help him and the only response was to forestall a potential eviction proceeding (though he hadn’t been served with any eviction documents yet). He indicated that the bankruptcy would wipe out some credit card debt and other miscellaneous obligations but nothing of any real merit. So, I told him, why are you even thinking of filing bankruptcy? You aren’t presently being sued, foreclosed on or evicted, you aren’t and haven’t been paying the credit card accounts and the accounts are already charged off, where’s the benefit you derive that you don’t already have? In other words, a bankruptcy filing would put a temporary stay into effect halting all litigation (but he wasn’t being sued) and would negate any required payments on the credit cards and other obligations that he already wasn’t paying. There was no benefit that was going to be derived from the bankruptcy.
So, I told him, DON’T DO IT!!!
You see, presently, a Chapter 7 bankruptcy is like a nuclear warhead. Properly programmed and guided it is going to wipe out everything. In life and business, just like in war, you don’t push the nuke button if you aren’t under attack. It is not a preemptive solution since it leaves tons of radiation in its aftermath.
Instead, I told him to begin the process of legally eliminating the debts and getting them legally removed from his credit report using the debt validation, debt investigation, statute of limitations, licensing and other laws and methods that he had at his disposal. If the time came that he ever did get sued, he always had the opportunity to file bankruptcy then. Even then, credit card default is generally not a reason to file bankruptcy because in most cases, they are never going to pursue litigation and come after you. Now, having said all this, every situation is different, I am not a bankruptcy attorney and you should always seek COMPETENT professional advice in these types of matters. I say COMPETENT because most attorneys are not competent and you should interview several when making such important life altering decisions.
To give you an example of how effective this is, we recently got a $16,000 credit card collection account removed from a family member’s credit report using one simple letter.
If you would like to understand exactly how we did this and learn other strategies to free yourself from debt and derogatory credit, sign up for our weekly video training and membership site here:
Author’s Note: This post was so popular that we added a continuation which can be found here: Don’t File Bankruptcy Unless (Continued)
As always, feel free to leave questions or comments about bankruptcy laws and credit restoration in the comment box below:
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