WHAT IS BANKRUPTCY?

What is its purpose?
Bankruptcy law entitles you to eliminate debts and get a fresh financial start. You have a right to stop collection harassment, wage garnishments, home foreclosures, and car repossessions.

Who files for bankruptcy?
Most often, middle-income parents with children, especially single and divorced mothers. Ninety percent have endured a job loss, a divorce, or an illness or injury that results in heavy medical bills. Careless spending is seldom in the picture.

Nearly 30,000 people file each year in Arizona.  Why so many?
Credit card debt rose 6,000% between 1968 and 2000. Mortgage debt levels set records between 1993 and 2005.  Mortgages, cars, health insurance, and school tuition exhaust income, leaving little to cushion economic setbacks. Job layoffs have increased 28% since the 1970s. Marriages end in divorce 43% of the time, causing financial hardship, esp. for women with kids. Medical care costs for a serious illness or injury can be enormous for the insured, with exclusions, co-pays, and caps, and beyond reach for the uninsured.  Home foreclosures rose 255% in 25 years.  Car repossessions have doubled in 5 years.

SHOULD I FILE FOR BANKRUPTCY?

1. Do you have more debt than you can pay?
With careful budgeting, can you pay your debts in a reasonable time?

2. Are you judgment-proof?
Some property and income is protected by law from collection. If you live on exempt income such as Social Security and have little property, creditors may not collect from you.

3. Will bankruptcy discharge your debts?
Student loan debts, child and spousal support debts, and recent tax debts are not dischargeable. Others are.

4. Do you have better options?
Resist the temptation to borrow more. Do not take out a second mortgage or cash out the equity in your house. High mortgage costs and an increased risk of foreclosure result. Be cautious about refinancing and debt consolidation plans. They do not eliminate or reduce debt. They do not reduce interest rates. Payments may be only slightly lower. Few lenders will offer you credit while you are in such a program. Debt consolidators, who disburse your money to creditors, may make payments late, ruining your credit record.

5. Is bankruptcy morally justifiable?
Click here to view essay

6. EXERCISE YOUR RIGHTS.
Bankruptcy is just another form of financial planning. It is not a drastic event. In the business world, it is known as “restructuring.” It is a necessary and just remedy to a credit-driven economy.

Will I get credit after bankruptcy?
Yes. You may get new credit on good terms within 2 years if you carefully manage your credit record. Home mortgages, car financing, and credit cards are all available.

Do I need an attorney?
Yes.  Filing for bankruptcy is not just a matter of filling out some forms.  You are preparing to enter a liquidation court.  You could easily lose thousands of dollars to a bankruptcy trustee, especially if you do not have a good attorney.  A good attorney provides strategic advice based on knowledge of law and knowledge of local practices.  This advice concerns liquidation issues, eligibility issues, fraudulent and preferential transfer issues, and dischargeability issues.  Consider how you select a dentist.  Fees are relevant, but your main concern is to find someone who knows how to work with teeth.  Do-it-yourself bankruptcy is comparable to do-it-yourself dentistry. 

What does it cost?
I do not have an expensive office or big advertising costs.  My fees are lower as a result. 

Will I lose my house?
No, if you stay current on payments and your equity in the house is less than $150,000.

Will I lose my car?
No, if you stay current on payments and your equity in the vehicle is less than $5,000.

How should I handle bill collectors?
Refer them to me. Federal law prohibits collection agencies from contacting you if you have hired an attorney.

Should I continue to pay creditors?
Stay current on accounts you wish to keep, such as mortgage and vehicle accounts. Stop paying credit card and unsecured loan debts you will discharge.

Must I go to court?
You usually must attend only one hearing before a bankruptcy trustee. I will be with you.

More: National Consumer Law Center, Surviving Debt; consumerlaw.org
Elizabeth Warren, The Two-Income Trap.