Dear Leon: I'm contemplating declaring bankruptcy and need some guidance as to why I should do so, as opposed to trying to clear up my credit otherwise.  I am also wondering why I should choose the services of a lawyer as opposed to doing it myself. Basically my situation is this: I  have had 2 car repossessions and several other outstanding debts.  I would guesstimate that my debts reach over $10,000 (not including student loans).  I am soon to be married and am also worried about how my credit will now affect my fiancées credit if I do/don't declare bankruptcy, as well as our ability to buy a house in 2-3 years time.  Any assistance/guidance would be great.

-- T. Unick in Marion, CO

Dear Ms. Unick: The reason for you to consider bankruptcy is because it's too late for you "to clear up your credit otherwise." I assume you mean you want to make the bad stuff disappear. There is no, "otherwise" for clearing up how you already handled your financial obligations. You can't erase the past and suddenly have great credit again. If there is such a way, we wouldn't need any bankruptcy laws for individuals, because no one would ever need or want to use them. Even if you wrote a check tonight and paid off all your debts right now, your credit will still be terrible for a long time to come, and you will also be minus all of the money that you would have paid.
 
Bankruptcy is a solution for getting a person out of debt; there is no a roadmap to instantly cure years of credit neglect or bad luck. That said, many people do emerge from bankruptcy and soon regain credit, financing cars, even buying a home, but to make that happen, you have to make yourself "credit worthy," with personal stability, good dependable income, and expenses that are kept under control.
 
If you decide to file bankruptcy, there is no reason for you to use a lawyer, unless you place a high value on having your case handled by people who know what they are doing; if so, go to an attorney with impeccable experience and credentials as a bankruptcy specialist. Many people try to handle their own case without a lawyer, and face disastrous results that could have been avoided. Most bankruptcy attorneys charge nothing for a consultation, and will adjust fees according to circumstances so that a potential client can afford this.
 
Finally, your debt problems will be a difficult burden on you marriage. I recommend that you resolve your debt issues before you marry; either get the debts paid off, or if you can't do that then see a bankruptcy lawyer.

 

 

 

Dear Leon: My name's Amy and I'd like to talk with a lawyer for bankruptcy advice via the Internet...at least until I get used to this!  Please e-mail me back ASAP!

-- Amy, via e-mail (of course)

Dear Amy: I suggest you get over your shyness, go find a lawyer and keep an office appointment. Consulting a lawyer and getting sound legal advice via email is simply not thorough enough to do the whole job. The purpose of this column is to give you some insight and point you in the right direction.  The lawyer's job is to help you. Seeking legal analysis and advice via Internet is risky to YOU, as you are prone to getting wrong, incomplete or misleading advice, even if you find a lawyer willing to risk it. Most lawyers in this field will even give you a free consultation, so there is no reason for you to hold back from getting help. To locate a bankruptcy lawyer in your state, consider contacting the National Association of Consumer Bankruptcy Attorneys, at: www.nacba.org.  (And if you're looking for counsel in Texas, click here.)

 

 

 

Dear Leon: My sister lives in Chicago and was recently laid off of work and has finally found a new job in the Chicago area. She has many medical bills in California that total about $50,000...plus others.  She has had some medical problems that have really drained her mentally and financially. She already filed bankruptcy in California 5 years ago. Is she eligible to file Chapter 13 in another state?

-- Marisa, via e-mail

Dear Marisa: A person's entitled to discharge most kinds of debt every 6 years under Chapter 7 Bankruptcy. It sounds like this is what your sister did 5 years ago. I'm assuming she has no valuable assets. If so, she can probably file Chapter 13 now, with a bankruptcy payment plan based on what she can afford to pay towards her debts over the next 3 years; whatever she can't afford to repay gets discharged by the Chapter 13 at the end of her 3 year payment plan. Sometimes the court will allow a plan to extend as long as 5 years if there is a good reason.

 

For persons with valuable assets, the Chapter 13 rules are much more complicated, and the repayment plan must take into account the value of property that creditors would have received if she was again under a Chapter 7 case. Bankruptcy is "Federal" law, so she can file it in the state where she now lives, even though her debts were made elsewhere. However, she needs advice from a qualified attorney in her state. Her lawyer might recommend that she just wait until the 6 years is up, and then file another 7. If she is being overwhelmed by debt collection, she can file the Chapter 13 now to have relief.

 

 
Dear Leon: My wife and I are in financial trouble. We have a yearly income of $63,000, own a home, have some home equity, and a home equity line of credit. We also have $45,000.00 in credit card debt. For us, bankruptcy has always been the absolute unthinkable. We are current on our bills, but it is getting harder by the month.

-- Sean in Van Nuys (via e-mail)

Dear Sean: Bankruptcy is an unthinkable word for most people, that is, until they truly need it. Chances are that you have frequently dipped into your home equity line just to meet the current monthly credit card payments, (the old syndrome of "borrowing from Peter to pay Paul").  If so, that is always a warning sign of severe financial distress. Concerning your home if you file bankruptcy, in California, most married people are entitled to protect $75,000 of equity in their home if they file bankruptcy; if they are elderly or disabled, that amount jumps up to $125,000, (these amounts vary from state to state). Home equity is the difference between what your home is currently worth, and what you now owe on all of your mortgage loans, (including home equity loans). As you can probably guess, home mortgage loans don't disappear in a bankruptcy, but credit cards usually do.

 

Let's assume the equity in your home doesn't exceed $75,000. If so, then please don't even think of using what's left of your home equity credit line to pay off credit cards, it could be a 30-year long payback mistake. If you do, all you would accomplish is swapping your home equity (that you would keep in a bankruptcy), in exchange for debts that you would probably discharge in bankruptcy. If you do that, you could be paying on that home equity loan every month for the next 15 to 30 years...why do that to yourself and to your family? In other words, you will be giving up what you could have kept, in order to keep what you could have gotten rid of; not a smart move.
 

            

Dear Leon: What do I get to keep if I file bankruptcy?

-- Chris in Encino

Dear Chris: Without realizing it, you have turned a very simple question into something that is quite complicated. This question would be very easy to answer if I knew what you owned, then I could tell you if there is something you have that would not be protected. But, to give you a very general idea, here goes: Assuming the person lives in California, (Federal Bankruptcy law is uniform, meaning it is the same in all states, except that the Federal law yields to state law on the issue of what you get to keep), it is very rare that a person would lose anything. This is because the law is extremely generous about letting you keep your property.

 

For example, a single person can protect at least $50,000 of equity in his or her home, a married person can protect $75,000 of home equity, or if the person is elderly or disabled, as much as $125,000 of equity; plus numerous other generous exemptions for many different kinds of personal property, such as household goods, money in certain retirement plans, automobiles, and if you don't have home equity to exempt, there is a very generous floating exemption that allows an additional $17,425 of protection for anything else you may want to keep. Most people won't ever lose anything to the court, but a few do. The best way to know for sure is to consult with an experienced bankruptcy attorney in your own state. Incidentally, this is probably the most common problem that blows up on people who file their own bankruptcy case without an attorney. I have even seen people lose things to the court that could have been protected, because their legal papers were not done correctly.

 

 

Dear Leon:  I have 12-year-old student loans, plus other debts from 7-12 years  ago, plus a few medical bills and other small debts that are more recent.  I  also believe that there are some judgments against me from an eviction about 5 years ago. Should I file bankruptcy or should I just  go hide in the woods and assume a new identity.  Recently the student loan people have been calling me at my work and getting me in trouble.

-- Leslie in Long Beach

Dear Leslie: Student loans that are made or guaranteed by governmental agencies and non-profit institutions of higher learning are not usually dischargeable in bankruptcy. Filing Chapter 7 won't make sense unless you only want or need to get rid of the other small stuff. Possibly a Chapter 13 is feasible to control the pesky collection activity if you can afford to begin paying something on your debts, enough so that they get paid off within 5 years. A more serious problem for you is the eviction judgment, which can stay on your record for 10 years or longer in California.

 

Most landlords don't care whether or not a person has ever filed bankruptcy, but they hate to rent to someone that has ever been evicted. Other debts, such as the ones you describe as 7-12 years old, are probably now outside the statute of limitations, (which is usually 4 years in California, meaning a creditor has only 4 years from the date of your default to file a lawsuit against you), so filing a Chapter 7 bankruptcy is not necessarily worth your while. Go see an experienced attorney for specific advice, and weigh all your options carefully before you decide.
 

 
Dear Leon: I'm considering bankruptcy. I have debts of about $8,000 in the hands of collection agencies.
I also owe about $1,900 in taxes to the IRS.  The taxes I owe are about 2 years old and they are income taxes.
What are my options, how much does filing for bankruptcy cost and how do I get started with this procedure? 

-- Phil in Sherman Oaks

Dear Phil: The fact that your $8,000 of various debts are now in the hands of collection agencies suggests that your credit's already so badly damaged that a bankruptcy won't hurt it...and it also suggests that you simply can't afford to pay back what you owe.  A bankruptcy's something you should seriously consider.

 

I assume that you are an honest person, and would pay the debts if you could afford to do so. That being said, if you can't afford to pay the debts, then your options are to file bankruptcy and get it over with, or go on living as you presently are.

 

An attorney will probably charge you around $500 to handle your bankruptcy, plus you have to pay a filing fee to the Federal Bankruptcy Court of $200. If that sounds like too much money, just remember that you can afford the bankruptcy case a whole lot easier than you can afford to pay the debts. Your taxes will not be dischargeable in bankruptcy at this time. If you do file bankruptcy, I suggest that you contact the IRS after the bankruptcy is discharged, and ask them to set you up with a monthly installment payment agreement. The IRS should be willing to do this with a monthly payment that you can afford. The general rule is that bankruptcy will discharge an income tax if you filed a timely and honest return for that was due at least 3 years before the filing of the bankruptcy.

 

Other very complex rules will apply, for example if you filed a late return, if there was a tax assessment, or if an offer in compromise was ever pending. Tax issues are a trap for the unwary, so a person really needs to get expert advice before seeking to discharge taxes.

 

 

 

 

Dear Leon: My ex and I filed bankruptcy in 1998. The major reason was an IRS debt that was unmanageable. For reasons that I won't discuss here my debt was not discharged through bankruptcy. I eventually paid the debt through an offer and compromise. My other debts were small--between $3 to 5K.-- I have been told that I can remove my bankruptcy from my credit record because my essential reason for filing BK was not satisfied.  Is this true? And do I need a lawyer?

-- Tom M. in Denver

Dear Tom: You probably can't remove the bankruptcy from your credit record, because after all is said and done, you actually did file it. Credit reports are just like a newspaper, they print  facts. The fact in your case is that you did file bankruptcy, and it doesn't matter whether or not the bankruptcy was granted. The readers of a newspaper want to rely on the accuracy of what is reported.

 

Of course, it's understandable that you want to remove derogatory information from your credit report, but if a person was allowed to remove such information when it was actually true, then the reports become unreliable, and won't be of any use to the lending industry. Those reports are not for your benefit, they are for the benefit of the lending industry; lenders are willing to pay the credit reporting service a fee for the information because they want to know how you have handled your financial responsibilities.

 

 

Dear Leon: We're thinking filing Chapter 7 bankruptcy and have a few questions.  How long does it usually take to get discharged, after you have signed your formal petition?  How long after you sign (the petition) do you go to court?  After you have fully retained a attorney what rights do your creditors have?  Can they legally repossess vehicles before my court date?  I was just wondering how long the whole process usually takes.

-- Todd W. in Los Angeles

Dear Todd: Expect a Chapter 7 discharge about three-and-a-half months the case is filed with the court.  Your "Meeting of Creditors" hearing is usually about one month after you file. Before your case is actually filed, your creditors still have all the same legal rights that they always had, such as to file a lawsuit, send you bills, and repossess the collateral on a delinquent loan.

 

However, a third-party debt collector, (such as a collection agency) may not (legally) contact you once they are informed that you are represented by an attorney; instead they must direct their letters and phone calls to your lawyer instead of to you. The whole Chapter 7 bankruptcy process is usually about four months from start to finish.

 

Readers with questions about debt problems and bankruptcy issues are invited to email your questions directly to Leon Bayer, or check out his firm's web site: www.debt-relief-bankruptcy.com.  Mr. Bayer's a Los Angeles-based attorney and a Certified Specialist in Personal and Small Business Bankruptcy Law by the State Bar of California.