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Welcome to My Bankruptcy Story, a true story about my personal bankruptcy.

You may be up to your eyeballs in debt, cannot make all the minimum payments, and are wondering: what are you going to do?

I empathize, as I have been there – so I present my personal bankruptcy story as an example. For the chronological history, go to My Bankruptcy Journal.

For the short story:

• I felt obligated to pay my debts, after all, I charged on the credit cards, hoping to make the payments (someday), and I got caught short. Really, I wanted to do the right thing and pay it back if I could.
• But I couldn’t pay it back. We had no savings. Our  income had declined for several years. We could pay some, but not all the bills. I needed to keep my family fed and clothed, keep the cars running so we could get to work, daughter to school, etc. I kept up on the mortgage, continued with the car payments, so we would not be homeless and car-less. That did not leave much for credit card payments.
• My wife and I were stressed. I had lost jobs repeatedly in the last few years – downsized, outsourced. I was soon to be laid-off when my daughter was born, and was unemployed several months during each of the next three years afterward, getting less pay each time I was back at a new job, with a wife trying to work part-time but otherwise taking care of our young daughter.
• Embarrassed, I started looking at options: debt reduction services, debt negotiation, and filing bankruptcy. I finally admitted our financial problems to our parents, who are all retired, grew up without credit concerns, and worried we would lose everything and go to debtors prison!
• I found out that we could file bankruptcy, Chapter 7, and actually not lose any of our possessions, as we were able to borrow $1200 from our parents to buy back what would be otherwise have been taken from us. We got to keep our home, our two cars, our furniture, jewelry, everything. Our debts were wiped out. We still continue to pay the first and second mortgages but the credit card debts are gone. There was no big yard sign  saying “Bankruptcy Sale” to our neighbors and friends. It was actually relatively painless. Much better than dealing with creditors.

So what should you do?

Each situation is unique. But assuming you are stuck as we were: income minus living expenses not enough to make all your required payments on debts, then see below for your options. And remember: stay current on payments for your secured debts, like you home or car, as these can be foreclosed upon or repossessed.

Chapter 7 Bankruptcy

• You have to pass a “means test” to qualify.
• You get to zero out most debts, particularly credit cards.
• You may lose some personal property, maybe your home, car, furniture, jewelry, savings.
• Your credit rating will be horrible, and the bankruptcy will stay on your credit reports for 10 years.

Chapter 13 Bankruptcy

• You may qualify if you fail the “means test” for Chapter 7 Bankruptcy.
• Your debt is repaid at a lowered payment rate over three to five years.
• You don’t lose any of your personal property, but you will have to stay current on mortgage payments, car payments.
• You might get a repayment plan that enslaves you for up to five years, and before your plan end date, you might lose your job and have to refile for bankruptcy Chapter 7 anyway.
• Again, your credit rating will be horrible for up to 10 years.

Debt Negotiation / Debt Settlement / Debt Reduction

• You can hire a service to do this on your behalf, or try it yourself. I got one creditor to accept only 15% payment on my debt, but I could not get the others to go that low.
• You make one or two payments of the negotiated balance and the debt is considered paid in full.
• If you don’t have the cash on hand, cannot borrow it, cannot get some other creditors to negotiate, then you are stuck with making payments to the others as before.
• You have to be very late in your payments to be able to negotiate, and the creditor will be close to charging-off the debt, and perhaps filing suit against you or garnishing your wages.
• Your credit rating takes a big fall from this process; but it may recover faster than after bankruptcy.
• You pay taxes on the reduced balances that were negotiated, so you need cash to pay the IRS for the debt forgiveness you received.
• The companies providing this service make a lot of money (from you), hence the many advertisements for this service.

Debt Consolidation

• These companies may charge extremely high fees (and charge monthly, so have no interest in having you pay off early).
• Some of your creditors may refuse to work with them.
• Your chances of getting sued increase, as you must stop making regular payment before the credit card companies will negotiate.
• Your credit will likely end up in worse shape due to being behind in payments.
• A debt consolidation loan may put you into deeper debt, if you don’t manage your money carefully thereafter. Your home may be put at risk if using a second mortgage for this.
• Many of these companies are “not for profit”, but really shells for funneling money to “for-profit” companies.

Consumer Credit Counseling / Debt Management Plan

• This program has been popular for many years with American debtors. What this set up will do for you is lower high interest rates back down to something much more manageable. Another benefit of a credit counseling program is that you will be put on a fixed monthly payment, not a monthly minimum payment. This payment structure will greatly speed up the time it takes to become debt free usually you can find yourself out of debt within 5-7 years. However there are some dangers to consumer credit counseling programs that you should be aware of.