Is Bankruptcy a Catastrophe or a Big Relief? Dealing with Debt and Resolving it Now…

Sometimes it’s hard to fully understand bankruptcy when you are going through the situation yourself. When you’re actively dealing with a big debt problem, it always feels like a catastrophe and that you are a total failure.

I know for me that is what it felt like – a gigantic pile of debt overwhelming me and destroying my life. 30+ debt collection calls every day, endless debt collection mail, lawsuits being threatened (and about to begin). It’s really one of the hardest things people can go through. The hardest part is that there is no support from family and friends at all. In fact, debt troubles are something no one tells anyone about. I know I kept it all a secret. It’s just way too embarrassing to appear as a big failure before everyone.

Are Large Debts Worse Than Scary Illnesses?

In some ways dealing with gigantic debt is worse than a scary illness or similar. Here’s a good example of how that can be the case. How many people do you see on Facebook who tell the whole world (or at least all of their family and friends on Facebook!) that they have a serious illness. (Cancer, diabetes, heart attack, etc.) What is the result when they share that on Facebook? They receive a huge outpouring of support! Everyone feels bad for them and many will try to help them out deal with their problems in their day to day life. It can really feel like everyone loves you and wants to help you out! It can make your illness a lot more manageable.

Does Anyone Post Debt Troubles on Facebook?

Not so for debt troubles. When was the last time you ever saw anyone post that they are in huge debt and need help managing their bankruptcy on Facebook? Probably never. Yet there are 500,000-1,000,000 bankruptcy filings every year in the USA alone! Yet no one ever talks about it with their friends and family. This makes it very difficult – as debtors often suffer alone.

This means that dealing with your debt can be a big relief once it is finally over. You don’t have to feel overwhelmed about it anymore and can more easily interact with family and friends because you don’t have a huge dark cloud hanging over your head.

The Shame of Debt Can Be Overwhelming

The shame and pain that big debt causes can be truly overwhelming. Not only are you receiving dozens of contacts from mean and angry debt collectors, but you have to suffer in silence without any support from those you know and love. You know that if you revealed publicly a big debt problem that you would be judged harshly and that people would be mocking you behind your back. You know they would be saying things like, “wow, that’s pathetic” or, “wow, he should never have started that business, what a stupid idea that was” All of these insults you know will be there even if people aren’t quite willing to say these things to your face. Then if people do know, you know that they will always know. Even decades from now they’ll remember your failure. So it often seems best to just tell nobody. As long as you don’t tell anyone, no one will know. You can file bankruptcy and no one will find out. This is all well and good except that you get no support or kindness offered towards you. All you get is debt collectors contacting you all day.

Clear Your Debts, Restore Your Peace

This is why the clearing of all your debt is such a big relief. It results in your freedom.  It is essential to clear your debts as fast as possible (keeping in mind certain reasons why it might be smart to wait to file for bankruptcy) and get yourself back to a normal life as soon as possible. Consult a bankruptcy lawyer right away (it’s free) and then put into action a plan to reclaim your life. Rebuilding your finances can take some time, but reclaiming peace in your life can happen almost instantly.

While many people think of debt as being a bad thing, this is not always the case. Some debts are brought on by careless spending and can lead to problems for a person. Some debts, considered good debts, are those that are needed for big purchases such as a home. This kind of debt brings value to a person’s life. Understanding the differences in good and bad debts can help individuals to better manage their finances and even improve their financial outlook with debt consolidation.

What Is Considered Good Debt?

There are some things that are worth going into debt over. If going into debt brings you something that is going to generate an income or increase net worth, then it may be worth it. Whenever someone enters into debt, they need to be sure they carefully consider their options before making a final decision. Debt should never be entered into lightly.

Seeking a college education is worth going into debt as long as you are choosing an educational path that will lead to a solid career. Those with higher educations are generally able to secure a higher paying job. Investing in your future is always a sound decision and a good reason for going into debt.

Purchasing real estate is a type of good debt. Whether you are purchasing a home to live in or property for investment, both can improve net worth. Many people purchase a home and live it in for a few years before moving out and using the home as a rental. A rental property can bring in a steady source of income.

Starting a small business is also considered good debt. As long as you have carefully researched and are prepared to work hard, owning a small business can help to increase your net worth and income.

While good debts are considered more acceptable than bad, debt should never be thoughtlessly pursued. Whenever considering going into debt, think about whether or not the purchase is going to benefit your future income in some way. If it is not, you may be heading towards a frivolous purchase that is later a regret. Many people who get in over their heads with debt find themselves there because of poor financial decisions.

What Are Bad Debts?

Bad debts are those that are used to purchase items that will not add value or will depreciate over time. Generally speaking, you should avoid debts that will not increase your net worth or add income. For this type of purchase, it is wise for individuals to save money and make a cash purchase instead of creating more debt.

A new car purchase is bad debt. Cars immediately begin depreciating in value. New cars are expensive and they will not increase your net worth or give you income. Many people purchase a new car for pride reasons. Instead of getting into debt, it is wise to save money and purchase a used car with savings.

Credit cards are the worst of bad debts. The interest rates for this type of debt are often much worse than consumer loans. Because of the setup of payments, they are stretched out in such a way as to cause higher amounts of interest to be charged. Credit card debt should be avoided as much as possible.

Clothing, goods and services, and consumables should never warrant going into debt. These expenses can sometimes be frivolous. Going into debt for vacations, new wardrobes, and other goods is a waste of time. The interest paid on these debts is wasted and could have spent more wisely.

Some Debts Are Neither Good or Bad

In some cases, debt is not necessarily good or bad. One such case is debt consolidation loans. If someone is in over their heads with high-interest debt, taking on a debt consolidation loan can be helpful.

Using a debt consolidation loan to pay off high-interest bad debts will help to decrease the amount owed. The most important tip for obtaining a debt consolidation loan is to use the extra money that is being saved to pay off other debts. By taking this strategy, you will be able to pay off your debts much faster and reduce the amount of interest that is paid.

Conclusion

Making the right choices when going into debt is essential. Choosing good debts helps to increase your net worth and income, but they should not be pursued often. With too much debt, individuals find themselves struggling to make payments and the interest can become overwhelming.

When debt becomes a big problem, a consolidation loan may be beneficial. Using the money to pay off the high-interest debts that are owed can lessen the payments, freeing up money to pay off other debts. Taking on debt can sometimes be a good thing, as long as it is approached sensibly.

Getting into debt takes very little effort on a person’s part. Paying off debt once it has amassed tends to be extremely difficult. Individuals often underestimate how much they will pay in interest and other fees and find they are in over their head in little time. For this reason, numerous people in their twenties are now opting to file for bankruptcy to secure a better financial future. Even those who come from a financially stable family may find they are in this situation. However, is bankruptcy the best option?

Chapter 7 Bankruptcy

Chapter 7 bankruptcy erases a person’s debt in full with certain exceptions. This provides the person with a clean slate to begin again. However, numerous individuals find the debt that remains is still overwhelming and they aren’t better off financially like they imagined. Furthermore, certain assets must be surrendered as part of the process, and bankruptcy attorneys charge a fee for their assistance. This fee is paid either as a lump sum at the beginning of the process or over a period of several weeks.

Individuals must recognize certain types of debt will not be erased when this option is selected. Student loans are very difficult to get discharged as part of a bankruptcy and the same is true of child support obligations. The debtor needs to speak to an experienced attorney to learn which items he or she may be able to keep as part of this process and which debts will remain once the bankruptcy filing has been approved.

Chapter 13 Bankruptcy

In contrast, chapter 13 bankruptcy enables the debtor to retain some of his or her assets. Nevertheless, the debt is not erased but must be paid over a period of three to five years. Any debt remaining at the end of the monthly payment plan is then erased. With this option, individuals find the attorney fee is rolled into the monthly payment as opposed to being due at the start of the process. The no-fee-up-front practice remains common among bankruptcy attorneys and the fee tends to be higher than if paid up front. Furthermore, individuals who find they cannot adhere to the repayment plan as agreed will have their case dismissed and the debt remains their responsibility.

Duties of the Attorney

Once an individual files for bankruptcy, he or she is instructed not to speak to creditors. The attorney handles all communications with creditors when the paperwork has been filed, and the debtor stops making payments on the debt. Furthermore, creditors are prohibited by law to contact a debtor following a bankruptcy filing. Be aware the first payment of the repayment plan is also due before the first court hearing on the matter.

The Bankruptcy Hearing

A person may be hesitant to file for bankruptcy as he or she fears appearing in court. However, most cases of this type are handled in a casual manner and the entire process within the courtroom may only take a matter of minutes. Once the filing has been approved, the debtor is officially bankrupt. Those who filed for Chapter 7 find the majority of their debt has been erased, in most cases, and individuals who filed for Chapter 13 will continue to make payments on the payment plan for the predetermined period of time.

The Benefits of Bankruptcy

Debtors who file for bankruptcy often feel relief upon doing so. They have a plan to deal with their finances and can improve their financial situation in less time than they originally imagined. Much of the debt may be erased, making it easier to pay on any debt that remains. However, there are drawbacks to this process that individuals need to be aware of.

The Drawbacks of Filing for Bankruptcy

Bankruptcy typically results in a person’s credit score dropping, and this can have a negative impact on the individual’s ability to secure credit, rent an apartment, obtain a mortgage, or secure a job. Furthermore, the person must report the bankruptcy on various official documents the rest of his or her life, and the bankruptcy is a matter of public record. Anyone who wishes to obtain information about this legal action can do so easily.

Other Options

Bankruptcy isn’t the only option for those individuals who find they are drowning in debt. A person may wish to look into debt consolidation loans, work directly with creditors to pay down the debt, or borrow from family and friends to get their head above water once again. Each option has its benefits and drawbacks that need to be considered before any decision is made. What works for one individual may not be appropriate for another, so be sure to take the individual circumstances into consideration when weighing each choice.

Admitting to overwhelming debt is something individuals don’t wish to do. However, this is the first step in overcoming the problem and securing a financial future that is significantly brighter. A person can then thoroughly evaluate his or her debt relief options to determine which solution best meets his or her needs.

Debt collections is often much more mentally and psychologically challenging than the actual collections themselves. Let’s take a look at a variety of ways to handle this mental challenge.

Take a Long Term View

The first step to realize is that your debt situation is a passing thing.  It WILL be resolved someday. It is not a permanent situation. You always have a way out. Try to step out of the immediate situation and acknowledge the simple reality which is:

1. I have a lot of debt that I can’t pay
2. I need to create a plan that will resolve the debt

Breaking it down into simple steps will allow you to focus on taking the needed action to resolve your debt issues.

Ignore the Debt Collection Calls and Letters

Pay attention to this one – when you know the status of all of your debts, you should start ignoring the debt collection calls and letters. All they are are pieces of paper and words on your voicemail. There’s no need to read the same debt letter for the 8^th time or listen to the same voicemail for the 20^th time. Once you have a plan in place, simply follow your plan to resolve the debt and ignore all the noise around you.

This is not to say that you should not understand how much you owe and who you owe it to, or that you should simply ignore debt collectors with no plan. Rather, that once you have a plan, such as a plan to file bankruptcy in 2 months, you no longer need to pay any attention to debt collectors.

Turn Your Phone to Silent

This is an easy one. Turn all your phones to silent so you don’t have to hear them ring 30 times a day! Keep focused on your plan.

Discuss Your Plan With Your Attorney or Debt Counselor

One great way to not have so much stress is to put that burden on your lawyer or debt counselor. Let them handle your situation and help you make the right decisions. Although the situation may be very emotional for you, lawyers see these tough debt situations every day. By giving your professional the stress of the situation, you can keep your peace for yourself.

Take It Easy On Your Loved Ones

Your family members and loved ones don’t need to bear the burden of the stress as well. Discuss it with your spouse and create your plan, but don’t allow your debt to turn into fighting and yelling. I know, it’s easier said than done, but it’s something you need to strive for. The best way to avoid fighting is to create a plan! If you have a plan in place with your spouse to get out of debt you can focus on just working your plan rather than fighting. One good way to do this is to go to a bankruptcy attorney together so you can look at your finances realistically and get a good plan going.

Most Importantly – Go Easy on Yourself

Once you’ve gotten into a difficult financial situation, go easy on yourself. This means that there’s no use beating yourself up now. Accept that you made mistakes, and then move forward to correct them and resolve not to make those same mistakes again. If you beat yourself up too much you’ll be too filled with anger at yourself to analyze your situation with the patience and calm attitude that is needed. So, keep your focus on the goal – resolving your debt – and go easy on yourself!

One of the scariest things you may encounter when you are considering a bankruptcy or you are in a tough debt situation is the endless calls from debt collectors.

At my peak, I was getting over 28 calls per day from debt collectors. That’s a lot of stress and can cause you a lot of anxiety. Through it all I was able to stay very calm and focused on my plan for getting rid of my debt, which in my case was bankruptcy.

Here’s the strategies I used to keep calm and move forward.

Never Answer a Call From A Debt Collector (Without a Plan)

You should never answer a call from a debt collector. Debt collectors are trained specialists designed to make you feel guilty and to take any and every possible dollar from you. Nothing is to be gained by talking to them. Just let all of the calls go to your voicemail. You may have a misconception that because you have a cell phone, that debt collectors should not be able to call you at that number. That is false. Since you have a relationship with the company that you owe money to, they are certainly allowed to call you to collect the debt owed.

Make sure you set all of your phones to silent mode at all times. There is nothing worse than actually hearing the phone ringing all day. Flip your cell phone over so you don’t see the calls coming in. I remember how many times I would have it flipped over and then an hour later I would take a look and see 7 calls with 7 voicemail messages left. At the beginning, it was a bit stressful, but quickly I learned to just ignore them. They are just numbers on a screen! Don’t be worried – rather – focus on your plan for eliminating the debt in the best way possible.

How to Answer a Debt Collection Call at Work

One of the scariest moments is when a debt collector calls you on your work phone. At work, you may be forced to answer the phone because you aren’t sure if it is a business contact or not. All of a sudden, you may find yourself on the phone with a debt collector. The first thing a debt collector will always do is verify your identity. They will ask you your name, and they will not start talking about your debt until you confirm it is you. For example, when you pick up the phone and say “Hello?” they will usually say, “John Doe?” or something similar to get you to quickly confirm your identity. Once you respond yes automatically, they will go right into debt collection mode.

Here’s how to respond. Once you realize it is a debt collector, say this: “I can’t take personal calls at work. Please don’t call me here anymore.” Then you hang up. Say nothing else. By law, they will no longer be able to call you at work anymore! This is a great strategy. Also, if coworkers are nearby it’s easy to play it off as someone trying to sell you something or someone calling you about some type of home service. (house cleaners, house repairs, etc.)

One of the things that you may be most concerned about when you are considering filing for Chapter 7 bankruptcy is whether you should reaffirm your debts or not. Usually people think like this when they are worried about losing something, like a car or a house, or they want to start rebuilding their credit right away with a reaffirmed loan.

The first thing you should realize is that you WILL need to list all of these debts in your bankruptcy filing even if you want to reaffirm them. Next, you should understand that the vast majority of lawyers are not going to help you with reaffirming a loan in a chapter 7 bankruptcy. Why? The reason is because there is very little good reason to do so. If you are current on your car loan and house loan, all you have to do is keep paying on it and you will be able to keep it. The bank will not be able to take these items unless you stop paying on them.

In order to get a loan reaffirmed you are going to have to absolutely make sure your lawyer goes through the process to get it reaffirmed. Unless you present yourself as extremely intelligent and have a great reason for it, they still probably won’t help you. Sometimes lawyers will even say things like “Sure you can reaffirm loans if you want to” but then they won’t actually follow through. Sometimes lawyers are in a rush and also they know that there really is not much benefit to you to reaffirm. The trustee may also question a reaffirmation, adding another layer to the process.

Here’s Why You Probably Shouldn’t Reaffirm Any Loans

The reasons to not reaffirm are many. For example, if you do not reaffirm a car loan but just keep paying on it after the bankruptcy, you will be able to keep the car and when you pay it off you will get the title. If for some reason you later realize the payments are way too high, or you realize that you are underwater on the loan (owe more than it is worth) all you have to do is stop paying on it and the bank will repossess it eventually and you will not take any credit hit. If you do pay the car off you will get the title and own it and it will be yours. The same is true for the house.

In my bankruptcy I kept both my house and my car. Both loans were discharged in the bankruptcy proceedings. However, I kept paying on both of them and was current on them at the time of filing. I eventually paid off the car and then received the title, so it is 100% mine now. That car remains my daily driver and it was a great choice.

For my house, I kept paying on it for some years and then sold it. I kept all the proceeds. (The house was exempted in my bankruptcy)

In short, be very careful with trying to do a reaffirmation. Usually you just aren’t understanding properly what will happen in your bankruptcy and are too worried about keeping low value cars or houses. Just realize that you can keep these things if you keep your payments current. It’s better to have a 100% clean start in bankruptcy.

One of the things that people considering filing for bankruptcy are most worried about is what is going to happen to their car. In other articles I talk about the different options you have to both keep your car or to abandon it if it is upside down (you owe more than it is worth). Today I’ll be writing about how to get a good car loan after bankruptcy.

The first thing you want to make sure you have in place is a solid income with your W2 statement. If you have no income or very irregular income you are going to have a hard time getting a car loan with a relatively low interest rate. You will probably get targeted at 28% interest if your income is not in place – and, of course – the higher the income, the better! It’s important to get a solid income/job in place BEFORE you file for bankruptcy. I talk about that in other articles.

Why People Who Just Got Discharged Are a Great Catch for a Lender!

Next, you need to realize that if you have an income and you just got discharged from bankruptcy, you are actually a very good person to lend to. Why? Well, first of all, you can’t file for bankruptcy again for many years! This results in the ability of the lender to be able to hound you if you don’t pay! That means you should only take out a car loan if absolutely necessary. You should never take out a car loan at 10%+ rates. You should also make sure you pay off any car loan as fast as possible.

Now, the most important thing to do to get a low rate on a car loan is to go to the right dealer to buy a car! Remember, that the best way to get a car after bankruptcy is to pay $1,000-$3,000 for a car in cash for an older car that you can find on craigslist. You should be able to save up that much money before you file for bankruptcy at least. Many states allow you to keep much more than that. In California, you can keep around $28,000! More than enough to pay for a car if you need one.

Choosing a Car Brand After Your Bankruptcy

Now, the right place to go is to a reputable mainstream car dealer. My current picks are Hyundai or Ford. Both of these brands have reliable cars that can be purchased for quite a bit cheaper on the used market than other brands such as Toyota, Honda, or Subaru. Your goal is to get as high quality of a car as possible for the cheapest price, and Hyundai and Ford are good brands to do this at this time.

You want to go to their used car area and choose the best car you can find for $10,000-$17,000. You are not buying a new car at the dealership. Next, you’ll be stuck going through their financing team. This can be a real struggle for the uninformed and vulnerable who just filed for bankruptcy! The good news is that generally they will try to get anyone approved that they can, because it means a sale and more money for the dealership. The dealership will definitely try as hard as they can to get you approved.

Getting Financed by the Car Dealer After Bankruptcy

The other good news is they will run your info by as many possible lenders that they can. This gives you a lot of options. Also keep in mind that they will probably want you to take a 72 month loan. This is OK, as your goal will be to pay the car off as fast as possible especially since your interest rate still won’t be very good. Even 5.9% is not a rate I want to be paying for very long!

You should be able to get a loan under 8% by shopping around for rates if you have a solid W2 income. This is a high rate but it’s a lot better than the loan sharks who want to trap you into 25%+ rates. Never take out a loan like that. You filed bankruptcy to get out of debt, not to get destroyed by it again!

To wrap up, if you absolutely must get a loan for a car after bankruptcy, know that you can definitely still get a very reasonable rate. The goal is then to pay it off as quickly as possible. I paid my 5.9% car loan off in about 20 months – instead of the 72 they wanted me to pay for! That makes the interest hit not too hard – and now I have a paid off car that is nearly new and in great condition and should last for many more years.