 By David Haberbush and Herbert Wiggins When considering whether or not to file for bankruptcy, the best advice is to look before you leap. If you do look before you leap, you may find that bankruptcy does not offer the best solution to your financial problems. If you find that it is the best solution, then at least you know what you’re getting into. Sure, bankruptcy will put a stop to most collection efforts against you, including those dinnertime phone calls and threatening letters. The court must give creditors permission to take any further action against you. But filing for bankruptcy is a major decision with far-reaching consequences. So, as you consider your options, you need to ask yourself: Are there part-time, full-time, or consulting opportunities available to generate income? Are there lifestyle changes available to save cash, such as selling a car, changing your kids from private to public school or downsizing to another home? The bottom line is that bankruptcy will not automatically solve your financial problems. To receive Chapter 7 relief, or a liquidation bankruptcy, you must provide the Federal Court with your latest tax return and a statement of monthly income, among other forms of documentation. Via a means test, the court determines whether a consumer who files for a Chapter 7 bankruptcy in fact qualifies for that relief. The court could decide that a petitioner can repay a certain portion of his unsecured debts (such as store purchases, credit cards, and medical bills) and force him into Chapter 13, or repayment bankruptcy. Chapter 13 allows you to pay your debts in installments over a 3- to 5-year period. Repayment bankruptcy requires the consumer to remain under court supervision for up to five years, whereas a Chapter 7 bankruptcy is generally resolved much more quickly. Chapter 13 bankruptcy allows you to keep all of your property, as long as you continue to make Chapter 13 debt payments on time. You must continue to pay long-term obligations, such as mortgages and child support. Bear in mind that simply filing the petition won’t change lifestyle traits that may have gotten you into your present position in the first place. Realize that to ensure you don’t find yourself in such a situation, you must commit to personal change. You must understand that certain debts will not be erased out by bankruptcy, such as recent income taxes, child support and alimony, student loans, divorce settlements and other obligations. You should also understand the possible negative consequences of a bankruptcy filing. For one, the petition is a permanent, public document – anyone can read it. The filing remains on your credit report for 10 years, and debts discharged in bankruptcy remain on your credit history for another 7 years from the date that they appear on your credit report. Credit checks may make it difficult to find new rental property and new credit, and you also may have to pay higher than market rates for loans. If you decide not to file for bankruptcy and decide instead to seek debt counseling, heed the adage, “Beware of strangers bearing gifts” or, in this context, for-profit “debt counselors” and “debt consolidators” that you might have heard advertised on the radio. Sometimes incompetent, unscrupulous or downright criminal, they may take your money, or consolidate your debt in a way that causes you to lose your last valuable assets. The National Association of Consumer Bankruptcy Attorneys warns debtors to be “very wary of consolidating unsecured debts such as credit card debts into a mortgage loan, because in doing to they will usually transform debts that can be eliminated in bankruptcy into debts that cannot be eliminated.” For non-profit debt counselors, see the website of the National Foundation for Credit Counseling, http://www.nfcc.org. Because bankruptcy is a serious matter that can have negative consequences, you should consult a bankruptcy attorney. To find one, consult the National Association of Consumer Bankruptcy Attorneys, http://www.nacba.org, and/or your local city, county, and state bar associations. If you’re going to do it, it needs to be done properly so you can protect your rights, your property, and your family. About the authors: David Haberbush is the president of Haberbush & Associates in Long Beach, and Herbert Wiggins is a partner there. The firm has over forty years combined experience in resolving client debtor/creditor problems through litigation, workouts, receiverships, general assignments and bankruptcy under chapters 7 and 11. Page: 1 of 1 pages for this article
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