bankruptcy — Beating Broke

Debunking Myths about Filing for Personal Bankruptcy

November 23, 2018 By Thomas Bawdy Leave a Comment

If you’re thinking about filing for personal bankruptcy (either chapter 7 or 11), then the most dangerous adversary you face at this time isn’t an army of aggressive creditors: it’s a horde of devastating myths!

Indeed, there is arguably more misinformation floating around online and offline about bankruptcy than there is reliable information. That’s the bad news. The good news is that you can arm yourself with facts so that you can make informed decisions that are best for your current and long-term financial interests.

To that end, let us debunk the most enduring — and potentially catastrophic — myths about filing bankruptcy:

Myth: Filing for bankruptcy is an admission of financial irresponsibility or incompetence.

Fact: Across the U.S., more than 1.5 million individuals file for bankruptcy protection each year. The vast majority of these people aren’t thrill-seeking spendthrifts. They’re regular, ordinary people who fell into a debt hole that became a debt trap. For some, it happened slowly over time. For others, they were financially sideswiped by unexpected medical bills, home repairs, job loss, divorce, and the list goes on.

The message here is simple: if you decide to file for bankruptcy, then be assured that it’s nothing to be embarrassed about or ashamed of. Unsustainable debt happens. Filing for bankruptcy is a legal process designed to help people get out of debt and start fresh. It’s a protection, not a punishment.

Myth: Filing for bankruptcy will destroy your ability to get a loan in the future.

Fact: Yes, it’s true that filing for bankruptcy will damage your credit score (the actual number depends on where your credit score is right now — the higher your current score, the larger the drop).

However, it’s not true that filing for bankruptcy will permanently destroy your ability to get a loan in the future. Within months of filing for bankruptcy you can start rebuilding your credit score by applying for secured credit cards, and paying all of your other bills on time and in full. Within a year you’ll be eligible for a car loan or personal loan (you could actually get a car/personal loan sooner, but the rates will be sky high), and in a couple of years you’ll qualify for a competitive-rate mortgage.

Ironically, many people who file for bankruptcy end up surpassing their old credit score ceiling, because in their new post-bankruptcy life they are in control of their saving and spending, and are far more aware of the dangers of only paying the minimum amount on credit cards, buying “too much car” or “too much house,” and so on. They’re like people who, after getting a serious health scare, end up taking their health and wellness to unprecedented levels. They go from couch potato to marathon runner.

Myth: To save money, you should represent yourself in bankruptcy court.

Fact: If you have a legal background — and this doesn’t mean a few law classes in college or a neighbor who was once a paralegal — then you might be fine representing yourself in bankruptcy court.

However, if you’re like most people — i.e. you couldn’t write a book on how to correctly and safely file for bankruptcy — then do yourself an immense favor and consult a bankruptcy lawyer. You’ll not only avoid potentially costly mistakes, but you’ll save a great deal of time and stress. Why stress? Because once you file for bankruptcy, you want to ensure that everyone else around the table — from the court-appointed trustee, to all of the creditors who want a piece of the settlement pie, and even to the judge who is a human being and can make errors — behave in a legally compliant and appropriate way. A bankruptcy attorney ensures this happens.

The Bottom Line

Arming yourself with bankruptcy facts — and debunking myths — will help you make an informed decision on whether moving ahead in this direction is in your best financial interest.

If so, will it be a walk in the park? No. But it won’t be a trek through a minefield, either. With the right information, guidance and support, you’ll make it through this phase and into your new, better financial life ahead.

The Smell of Napalm

November 13, 2013 By Shane Ede 12 Comments

Napalm is a sticky, flammable substance that was invented in the 40’s, and used in several wars. Because of it’s stickiness, it attaches itself to everything, then burns at somewhere over 800 degrees. When it’s done, there’s no more jungle. No more enemies walking around. It’s vile enough, that it’s use on concentrations of civilians was declared a war crime by the UN in 1980.

By now, you’re probably wondering why a site about personal finance is discussing Napalm. Well. Here’s the thing. Debt is a funny thing. Most of us have it. Some of us have quite a bit. And most of us would like to get rid of it. In fact, most of us would just love to Napalm our debt. One fell swoop. Drop some sticky burning substance on it and have it gone in a few short minutes. We’d like that so much that we buy lottery tickets, raffle tickets, and buy books and products that promise some get rich quick scheme. People with debt are always looking for the debt Napalm.

We like to fantasize about what we would do if we won a couple million in the lottery and set our debt on flames. Erasing it, with one fell swoop, while getting rich at the same time. Much like Kilgore in Apocalypse Now, we love the “smell of [debt] napalm in the morning.”

Instead, we’re given the “debt snowball“, or the “debt avalanche.”

The truth is that debt is so easily gained, we want to find a solution to it that is just as quick. An afternoon with a credit card and a shopping mall can add thousands to the total. Thousands that could take us years to pay off. We wish we could find the Napalm to incinerate our debt.

Some people think that bankruptcy is that Napalm. But, as quickly as a bankruptcy can eradicate your debt, it doesn’t leave you without any scars. For many years afterwards, you, and your credit score, will suffer the consequences of the bankruptcy. Credit will be nearly impossible to attain. Prospective landlords and employers are even running credit checks before renting or hiring people.

We need to stop looking for the Napalm. We need to stop assuming that all is lost. We need to take some responsibility, find ways to make more money, save more money, and pay down more debt. We need to stop adding more debt.

If you want to get rid of your debt, it’s a slow burn, not a Napalm strike. Even in the world of personal finance, Napalm is a war crime.

Original image credit: korea by the U.S. Army, on Flickr

All Is Not Lost

November 7, 2013 By Shane Ede 13 Comments

I can’t tell you the number of times that, in our seemingly never-ending struggle with debt, that I’ve seriously contemplated just giving up. Just throwing in the towel and saying f-it. You know it’s bad when you catch yourself fantasizing about it. About how much easier your life would be without the struggle. Just declaring bankruptcy, taking the hit on your credit score, and moving on with your life.

Even now, after having written about personal finance for over five years, I still find myself in that place occasionally. We let our budgeting lapse, and inevitably our spending gets out of whack again. Something happens, and the emergency fund just doesn’t seem to cover it all. Or, worse, doesn’t seem to replenish itself as quickly as it should.

I can try and lay the blame somewhere. That always helps, right? If it isn’t my fault, then I can’t be blamed for it. I can’t be the one that everyone points to as the failure. I can deflect that attention to someone or something else. That helps. Until it doesn’t.

Every single time, it’s really me that deserves the blame. It wasn’t the boss that refused to give me a raise. It wasn’t the heater in the car that needed to be fixed. And it certainly wasn’t the kids that needed to eat. It was me. Every. Single. Time.

I failed to negotiate the raise. I failed to have enough saved up to make that repair. I failed to budget properly to make sure that we wouldn’t have to cut corners at the grocery store. Me. I did that.

I could just give up. I could miss having to work harder to be paid appropriately. I could miss having to pay attention to my budget to save money for car repairs, or to pay for groceries. I could do that. Giving up would be so easy.

Until it isn’t.