Facing Bankruptcy

People sometimes do funny things when under pressure - like hiding assets from the bankruptcy court. They do this by selling a car to a brother-in-law or "selling" their business to a new "partner." Hiding assets is illegal, and if discovered, it will hurt your credibility with the bankruptcy judge who reviews your case.

Last year, there were 2.5 million personal and small business bankruptcy filings in the U.S. Were all these folks deadbeats? Of course not. People most often file for bankruptcy after losing a job or becoming ill and unable to work. There's no shame in filing.

The court may allow you to keep a credit card with a low ceiling, but within weeks of filing, credit card companies will be stuffing your mailbox with tantalizing offers because now you can pay the bill! Be smart. Live on a cash basis for a while. Don't have the cash? Don't buy it.

Except in the most extreme cases, bankruptcy courts will allow you to keep the things you need to live - your home, car, tools of your trade, clothes - the possessions you need to keep working and living. The court will try to work out a repayment plan with the mortgage holder, or put you on a budget, but you get to keep your house.

If you have to borrow money just to keep your head above water, you're sinking fast. If you find yourself in this situation, it's probably time to call CareOne at 1-888-888-CARE. Think about it - each month, you're borrowing from Peter to pay Paul, and sooner or later, both of them are going to want their money.

Bankruptcy is designed to protect you. That's why it's called bankruptcy protection. As soon as you file, the court will notify your creditors and the telephone calls will stop, the nasty letters will stop and the repo guy will stop eyeballing your lime-green Pinto.

Once you file for bankruptcy, you'll start getting all sorts of come-ons - companies claiming they can settle for pennies on the dollar, or that they can restore your credit (for a hefty fee, of course). Forget it. These con artists prey on people in trouble.

A Chapter 7 bankruptcy wipes clear all debts that aren't collateralized, that is, backed up by a tangible asset like a house, car or boat. Non-collateralized debt includes things like credit card bills and medical bills, but doesn't include things like student loans or back taxes. The newest legislation allows the court to decide if you're eligible for this kind of bankruptcy protection depending on your financial circumstances.

A Chapter 13 bankruptcy is a repayment plan, which must be approved by the court. The repayment plan allows you to keep most of your possessions because you're still paying them off - just more slowly. However, things like child support, back taxes and student loans will still have to be paid on schedule.

Bankruptcy should be viewed as the last resort. It will affect your credit for 10 years. Loans may be more difficult to obtain and you may be required to pay a higher interest rate - even if you've had a perfect payment record for seven years.