To File Bankruptcy Or Not To File. That Is The Question.

Dear Friends

I have a very dear friend, let’s call him Ken. Ken is hardworking, educated, talented, and owns his own business. Ken has been a very successful business owner up until the last couple of years, during which he lost almost 75% of his business. He has also acquired $40k in unsecured debt and has a business space mortgage payment of around $2500. Ken’s net income last year was about $10K. As you can see, Ken is not making enough to cover his monthly expenses. Ken has been trying to sell his building for the last 2 years with no offers. He owes $325,000 on it, is under-water (owes more than it is worth) and will be lucky if he gets $250,000.

Ken has been trying to do all the RIGHT things. He has been talking with his bank and making arrangements for a short sale. The problem being short sales are a case-by-case deal. So Ken isn’t sure if the $75,000 difference will be his responsibility or not. Ken is also saddled with a $700 a month payment on his unsecured debt, which he acquired trying to keep his mortgage current. Ken’s debt is creating a moral dilemma for him, which is making him depressed and confused. His guilt is keeping him from making good decisions regarding the proper way to save his credit. Remember that every person on the planet has different credit, situations, morals, goals, and income. So one has to take into account all these factors when proceeding. Remember also that bankruptcy laws were put into place to help people when they are in a nonreversible credit state. If you find yourself in a position of debt that affects your family, and your health and mental welfare, or there is no way out-then it is time to consider a bankruptcy. Ken obviously is completely out of budget and qualifies for bankruptcy.

Picking a good bankruptcy lawyer is very important. When finding a lawyer make sure you try to get a referral and interview at least 3 before deciding on one. Ken went through several before finding one he felt was compassionate to his situation. I recommend staying away from ones you don’t connect with on the phone, or feel they are not listening to you. Important note: Bankruptcy chapter 13 is completely different than bankruptcy chapter 7 know the difference when you go in. Chapter 13’s stay open for years and are very difficult to close. You would ONLY want to file a 13 if you are trying to keep your house or your retirement. I do not recommend them. Basically chapter 7’s are when you have nothing left no savings no equity in your house no paid off car, you’re just broke. You can file a bankruptcy yourself but i don’t recommend that; the laws are getting more and more complex and you don’t want to miss anything. An interview with a good, competent bankruptcy lawyer will iron out all your questions and they will be able to calculate your budget and situation to see if bankruptcy is the way to go.

The future after bankruptcy is up to you. A BK stays on your credit for 10 years, so every time you apply for credit it will come up. One note: I had a friend say once to me, “Well you can’t get a job if you file a BK”. I almost fell over. It is not against the law to file a BK, that would be discriminatory hiring practice. Also, 2009 is going to go down in the history books for record amounts of filings for BK’s. It will not be shocking for underwriters to see millions of them in the future on people’s credit. So they will be way more lenient when they see them. If you do file a BK, credit reestablishment is very important, so staying on top of your credit afterwards is crucial. Never have a late payment after your BK has discharged and don’t start the cycle of debt again. Also, if you have a car loan when you apply for a chapter 7 you can keep it out of the BK, depending if there is equity. If you owe more money on it than it is worth you may want to include it in the BK. Remember you may have a problem getting another car after you’ve filed your BK, so you may want to keep it. Also by keeping it and paying on it after the BK is closed it is already reestablishing your credit.

Shakespeare wrote mostly tragedies and everyone more or less died in his plays. The bright-side here is - IT’S ONLY CREDIT.