Bankruptcy - US

Does anybody have any experience or knowledge in this area for someone with limited assets and a lot of debt (mainly medical - no credit cards, and taxes), accruced from very stupid and poor decision making due to untreated mental illness (mania is a killer).

This person is constantly have paycheck garnished leaving them with very little to live on, depite having what would otherwise be a good paying job (not wealthy by any means but definately enough to live on if budgeted). 

I know it doesn't cover student loans, I'm not sure about back taxes, I've heard conflicting information, though I imagine it may very somewhat from state to state.

I've heard it's a good idea to have a lawyer, but they aren't free or cheap either.

Original Post by thecrankyone:

Does anybody have any experience or knowledge in this area for someone with limited assets and a lot of debt (mainly medical - no credit cards, and taxes), accruced from very stupid and poor decision making due to untreated mental illness (mania is a killer).

This person is constantly have paycheck garnished leaving them with very little to live on, depite having what would otherwise be a good paying job (not wealthy by any means but definately enough to live on if budgeted). 

I know it doesn't cover student loans, I'm not sure about back taxes, I've heard conflicting information, though I imagine it may very somewhat from state to state.

I've heard it's a good idea to have a lawyer, but they aren't free or cheap either.

 

While I don't subscribe to all his thinking, Dave Ramsey provides a thorough and credible method to get out of debt. Try daveramsey.com.

Although I'm unfamiliar with the process, having a bankruptcy on one's record destroys their credit score for years (at least seven, if I'm not mistaken).  Therefore, if "this person" is intending on making a serious purchase, such as a home or a car, in the near future, declaring bankruptcy may not be advisable, especially if they haven't changed their spending habits for whatever reason (i.e., whether due to mental illness or bad judgment).

Original Post by thecrankyone:

Does anybody have any experience or knowledge in this area for someone with limited assets and a lot of debt (mainly medical - no credit cards, and taxes), accruced from very stupid and poor decision making due to untreated mental illness (mania is a killer).

This person is constantly have paycheck garnished leaving them with very little to live on, depite having what would otherwise be a good paying job (not wealthy by any means but definately enough to live on if budgeted). 

I know it doesn't cover student loans, I'm not sure about back taxes, I've heard conflicting information, though I imagine it may very somewhat from state to state.

I've heard it's a good idea to have a lawyer, but they aren't free or cheap either.

 

Cajun's suggestion first.

Then, if they are set on bankruptcy, most bankruptcy attorneys add their fees to the bankruptcy itself (depending on which type they file) so there is no out of pocket expense. You're right in that student loans will not be written off. However, all the medical expenses/bills will be included.

Chapter 7 has recently become harder to file, but I don't remember what the requirements are. In Chapter 7, all a person's assets that are not exempt (1 car, some basic household furnishings, etc.) are sold and then that money is divided among the creditors and the remaining debts are discharged.

Chapter 13 bankruptcy is where you are allowed to keep some property separate from the bankruptcy proceedings (house, etc.). The court will set up a payment plan for 3-7 or 3-5 or 5-7 years (don't remember which) and at the end of that time, remaining balances on the items that are being paid on under the Chapter 13 bankruptcy will be dismissed. Chapter 13 is more of a debt consolidation and since your friend makes what would be decent money if not for the garnishments, that's probably going to be the option he has to chose. The court will decide what portion of your friends pay is able to be sent to creditors each month. I'm not sure how that amount will compare with the amount that is being garnished, but like I mentioned above, it's a set time frame and then done.

ETA: Also, what thonx said.

This person has no house, nor the means to purchase one anytime in the future or a car (other than a very used one).  They also have no savings and are currently on a budget to pay what they can afford, but also need to pay rent,  car insurance, utilites etc though they are working to keep them as low as possible while carefully budgeting.

Original Post by thecrankyone:

This person has no house, nor the means to purchase one anytime in the future or a car (other than a very used one).  They also have no savings and are currently on a budget to pay what they can afford, but also need to pay rent,  car insurance, utilites etc though they are working to keep them as low as possible while carefully budgeting.

 

As a start, is there a financial advisor they can see through their employment? Or do they bank with anyone that offers financial advising services? At the places were DH and I have accounts, you can make an appointment at any time with someone there who can help with planning, etc. Or even just go for a consult with a bankruptcy attorney? They may not even qualify to file for one reason or another; I would think a bankruptcy consult would be free, but I'd verify beforehand.

I have filed bankruptcy twice - once in 2009 while married wtih the ex- we did a chapter 13 at that time - no big deal pay the trustee x amt of dollars for 5 years- well after a year we divorced then I just filed a chapter 7 last month.  So happy to have that last tie with the ex cut for good.

We had the house forclosed on in Oct of last year as well.  - I really don't care about the "ruined credit score" trust me in a year they credit card companies will be sending offers like nothing ever happened.  Of course the interest rate is through the roof - but I didn't go a week without getting at least 20 offers

The week after my latest filing I have started getting 5 offers a week from auto dealers offering me up to 20K for a new car! - yea right.

With the foreclosure I am just not going to be able to buy a house for 3 years, honestly I don't know if I ever want to own a house again.  I am perfectly happy in my cheap little single wide.  It's almost bigger than a 2 bdrm apt I have a neighbor but they are 50 yrds away and I have a huge acre of land for the dog to run in.  I only pay $450 a month too! 

I know from my bankruptcy filings that in today's time it's not that bad or looked down on like it was years ago.  Even one of my employers ( a doctor) is in bankruptcy. 

I don't regret my decision one bit.  I have savings account now for emergencies and if I don't have the $ in the bank I just don't buy that luxury item.  I pretty much have all that I need to be happy.  I do plan on saving up enough to get a new used car in about 6 months. 

In a chapter 7 you have to make less than X amt of dollars a year ( not sure how much that is) then you are allowed one car per household member ( husband/ wife) that is blue book valued less than 5K you can keep most household items, couch, tv, computers beds and basic stuff.

I have a coworker who is also filing 7 from a 13 they did lose her car but they have a huge house with a pool and acres of land and really aren't that 'broke" he owns a cabinet making shop which is very slow business now with the housing boom gone bust-

so if you don't have much to begin with you won't lose much.

Also there are pro bono options for bankruptcy.  I am not sure what that level is but there are options out there to file for free except the $300 court costs.

This person needs to see a bankruptcy attorney immediately. Consults are usually free. They should start with legal aid, if there is such a thing where they live and see if they can get a low cost or free attorney although the guidelines are so stringent typically it might not be feasible. 

Original Post by cajunrider:

While I don't subscribe to all his thinking, Dave Ramsey provides a thorough and credible method to get out of debt. Try daveramsey.com.

That's absolutely horrible advice.  Dave Ramsey is a tool that has made millions selling his goods to the poor.  His methods are sound, but unrealistic in most cases.

If your friend's debts are unrelated to back taxes, student loans, or child support...a bankruptcy is the best option for them.  It'll probably cost about $1000.  It will end the wage garnishments, clear all the debt away, and the person can start fresh.

And don't worry about the "it'll ruin your credit forever" scary talk.  Actually, it ruins your credit about the same as having late bills every month.  So if your friend can't pay their bills...they already have bad credit.  The bankruptcy makes buying large things like cars a bit more expensive (you won't qualify for super low interest rates for the first 6-7 years afterwards) and buying a new home is virtually impossible for the 2 years immediately after the bankruptcy...but other than that, there are really no major negatives do doing it.

Good Luck.

Original Post by caloricat:

And don't worry about the "it'll ruin your credit forever" scary talk.  Actually, it ruins your credit about the same as having late bills every month.  So if your friend can't pay their bills...they already have bad credit.  The bankruptcy makes buying large things like cars a bit more expensive (you won't qualify for super low interest rates for the first 6-7 years afterwards) and buying a new home is virtually impossible for the 2 years immediately after the bankruptcy...but other than that, there are really no major negatives do doing it.

Good Luck.

When I was looking for a place to rent I made sure the landlords didn't do a credit check.  And yes the credit rating was already in the toilet due to the high debt / income ratio.  Even when we got a 2nd mortgage on the house we didn't qualify for a good loan then and that was during the time when everyone was giving out 2nd/ 3rd mortgages.  Had I known then what our debt / income ratio was and the ex's spending habits I would never have agreed to that. 

Luckily the last 2 places I rented from did no credit checks and I had good references and job history.

When I bought my car in 07 we couldn't use husbands name on loan cause his credit sucked so much at that time.  Even my credit score was decreasing day by day. 

I really don't worry about it anymore.-  I guess if I was going to try to apply for a new job I might be concerned, but for now I'm happy where I am and enjoy not having any debt.

Thank you for all the help.

I checked out David Ramsey but all I could find on it were attempts to sell me books and classes.

I have back child support that I'll probably never see (child is now an adult with his own full time job and obligations, though he lives at home and helps out with what ever he can).

I've had the same job for 10 years come this December, however I'm also on several meds for bipolar II and  an inhaler for asthma that is mostly controlled but sometimes acts up, like when I had asthmatic bronchitis a couple weeks ago and had to take antibiotics and prednisone).  I have good insurance at work, but I still have copays and out of pocket expenses as they only cover 50-80% depending on the med. I have dental work I need to pay so I get more done. 

My credit rating is already horrible, I'm just trying to get my act together as it were, and try to get back to some kind of normalcy.

I pay about as low a rent as you can for a 2 bedroom that's fit to live in. I share a car with my son,  and the car is old enough to vote.  The other car we have is worth more for parts or scrap than as a car.

Most of the bills are from a few years ago, some of them are old enough to drop off, but not most of them.

Between that and my son, as well as my 80 year old mother whose health isn't the greatest, though she has all her factilties, she also has to look out for my brother who does work full time and have a fair amount of money but who is also on the low end up the bell curve slightly above mr (he was a preemie back in 1973 when technology was not as advanced as today). I already lost my father 16 years ago, I'm not ready to let go of my mom or be the one to look out for my brother who lives 400 miles away.

I dont' want to , it isn't how I was raised,  my dad was a very hard worker and very money savy. 

I'm so stressed its all I can do to work and keep up the basics at home. Some days I can barely concentrate, and have making stupid mistakes on things I should know automatically, and I have been over reacting to stupid minor things.

I just feel at my breaking point. I'm tired, I dug my own hole and I need help to climb out, before I get totally buried.

When it comes to bankruptcy, the only mistake you can make is waiting to do it.  If you can't climb out of the hole, continuing to dig isn't gonna make it any easier.

Original Post by caloricat:

When it comes to bankruptcy, the only mistake you can make is waiting to do it.  If you can't climb out of the hole, continuing to dig isn't gonna make it any easier.

Bankruptcy really is so simple, I know they changed the laws in the last 5 years or so but to qualify the income level is pretty small.  It really is not the stigmatized thing it was back in the 80's and 90's when people were looked down on.  Like I said one of my employers is a doctor and he's in bankruptcy. 

When I went to court last month the trustee was saying how busy it was going to get once everyone got their income tax back to pay the atty's for bankruptcy processes.  The first time we went there were probably 50 other people and we live in a small town.  There were lots of people we knew there in the same boat.

You are not alone and do it now before you get served with court papers

I work for a law firm that does Bankruptcy in MN, every state is different.  First off, your income has to qualify before you can file a chapter 7, (somewhere around $42,000 for single person), you have to have enough debt, not something like $5000.  Also, if you own a home, the amount of equity you have will depend on State of Federal Exemptions.  Federal are the best with little to no equity.  Each gets to exempt up to $3900 for a vehicle, $10,000 in household goods in furnishings, clothing has it's own exemption, as well as wedding jewelry (has to be saudered together prior to marriage), Most Retirement accounts are exempt.  There is also wild card exemptions.  Each person gets close to $11,000 in wild card, so stuff like your checking and savings account will be wild carded since they are not individual.  Back taxes and student loans are NOT dischargeable.  Any money owed to a government entity is not dischargeable.  You must claim ALL income received.  Social Security and survivor benefit money does not count as income.  Your expenses also have to qualify.  There are specific expenses you have to fill out and if it shows that there is a lot of money at the end of the money then your Bankruptcy will get dismissed.  We have had a lot of client who make a decent amount of money and live very cheap, not having enough expenses to tell the Trustee hey, can't pay bills.  As for homes, most people filing bankruptcy do not have equity, and if they do it is very little.  They can keep their homes if that is what they want to do.  They just have to sign a Reaffirmation Agreement that the creditor sends.  Same goes for a vehicle, if there is a loan on it and people want to keep it, they can usually "retain and pay" (which is paying as normal) or they can sign the Reaffirmation Agreement.  I know Ford will only accept a Reaffirmation Agreement, otherwise they come get the car.  Some creditors will do retain and pay, but more and more are requiring a reaff.  It is important to make sure that you are not in someone's Will who you expect to pass away.  If you do not have enough wild card to cover it, the Trustee will take it.  We have had this happen unexpectedly at our office.  It sucked for the client who lost $11,000.  If you are being garnished the only way to make it stop is to file bankruptcy or pay the debt in full, which is probably not an option.  The MN filing fee is $306 and we have a flat fee we charge on top of that.  If you are really low income you may apply for a filing fee with the Bankruptcy at the same time as filing.  They also have an application to make payments on the filing fee.  You have to take a credit counseling course before filing and a financial management course after filing.  We use www.ypside.com they are the cheapest our office gets.  If you have filed within the last 8 years, you cannot file a 7 again until 8 years from the date of discharge, unless you file a 13.  I can't think of anything more that is important.  Let me know if there are more questions.  

Also, filing bankruptcy won't hurt anyone anymore than they are not paying their creditors.  Most people are usually so many months behind that it doesn't matter.  Most people can get a car loan months after filing and a home loan about 3 years after filing.  It takes about 10 years to build the credit back up.  If you're already so deep in the hole, Bankruptcy is the best and probably only option.  Most attorneys, if they are nice like ours, will take payments.  We start work with half the fee, but don't file until we get it all.  Lots of our clients make payments until they pay in full.  We understand, there's a reason they need our help.  Yes, we do have clients that are completely ridiculous because they have no knowledge of budget and spend money like they're making it.  The ones who have a $40,000 truck and a $12,000 motorcycle are the ones that drive me crazy!  But they NEED the truck and bike, god forbid!

I just heard that in IL there is a "medical bankruptcy" option. I don't have any info about it though..sorry!

There are legit non-profit agencies that will help make calls to debtors with you/for you and help come up with a payment plan.

If this is from medical reasons, and you have insurance now to cover future medical emergencies and will not repeat the trouble with debt, maybe medical bankruptcy isn't a bad idea. But, from my experience people who file bankruptcy continue to have problems in the future because they didn't learn how to plan ahead, prepare for an emergency or what else. I'm not saying this is completely your fault, but managing financial obligations is like weight management: There are quick fixes, but not learning how you got to your problem point and making changes to avoid them will lead you right back to trouble.

Original Post by mjsophia:

I just heard that in IL there is a "medical bankruptcy" option. I don't have any info about it though..sorry!

There are legit non-profit agencies that will help make calls to debtors with you/for you and help come up with a payment plan.

If this is from medical reasons, and you have insurance now to cover future medical emergencies and will not repeat the trouble with debt, maybe medical bankruptcy isn't a bad idea. But, from my experience people who file bankruptcy continue to have problems in the future because they didn't learn how to plan ahead, prepare for an emergency or what else. I'm not saying this is completely your fault, but managing financial obligations is like weight management: There are quick fixes, but not learning how you got to your problem point and making changes to avoid them will lead you right back to trouble.

My ex and I tried this option for the debt program - it actually is almost worse than bankruptcy.  I had a coworker who also had done one of those programs and she was told it would have been better for her credit rating to have filed bankruptcy. 

Yes, I divorced my "problem" hahhahahahaha!!!

Its hard for me to get online, I coudn't afford to replace the computer after it died, so I get online at work or the library, which limits my time.

I'm in ND, Fargo actually so spitting distance of MN.

I have no expensive toys, save a nice bike that was given for free.  Furniture and clothes have little value, and I make less than 40K for sure.

I'd have to add up the debt buts its at least 5k.

I have put my self on a budget to make sure rent, utlities etc get paid first.

With out the garnishment they would be no problem and I'd have money to save and enjoy a few small niceties.

I don't eat out, I can cook very cheaply at home (beans yummo).

I'm trying to turn things around, but lately it's two steps forward and one step back.  I have a small 401K, but I'm paying back loans on it right now.  I have a bonus comming in Sept (not huge) as well as one in Dec, and also in Dec another bonus as my 10 year anniversary here (no idea how much).

I can't really talk about income as my job is beyond up tight about anyone knowing how much anyone else makes. People have been fired for discussing salary or bonuses.

I am planning to call the Villiage (local agency that handles many things counceling, financial counciling, adoption and other things as that is free through work. ND legal aid mainly deals with housing issues and discrimination issues, though I did fill out an application on line to see if they can direct me to any rescources.  The Villiage has been in Fargo for years, and has an excellent repution.

Its gotten to the point where the middle of the night panic attacks, some that's been gone for years have come back. I wake up in the middle of the night freakign ou thinking I've over slept and start getting ready waking people up, then reality kicks in and I fall back in bed an go to sleep. Its really not fun at 2 in the morning. 

Original Post by dbackerfan:

Original Post by mjsophia:

I just heard that in IL there is a "medical bankruptcy" option. I don't have any info about it though..sorry!

There are legit non-profit agencies that will help make calls to debtors with you/for you and help come up with a payment plan.

If this is from medical reasons, and you have insurance now to cover future medical emergencies and will not repeat the trouble with debt, maybe medical bankruptcy isn't a bad idea. But, from my experience people who file bankruptcy continue to have problems in the future because they didn't learn how to plan ahead, prepare for an emergency or what else. I'm not saying this is completely your fault, but managing financial obligations is like weight management: There are quick fixes, but not learning how you got to your problem point and making changes to avoid them will lead you right back to trouble.

My ex and I tried this option for the debt program - it actually is almost worse than bankruptcy.  I had a coworker who also had done one of those programs and she was told it would have been better for her credit rating to have filed bankruptcy. 

Yes, I divorced my "problem" hahhahahahaha!!!

Depends on the agency. The one we refer our clients to has been very helpful in giving better options than bankruptcy. But yes, some destroy your credit as a means to get debtors off your back.

Original Post by thecrankyone:

Its hard for me to get online, I coudn't afford to replace the computer after it died, so I get online at work or the library, which limits my time.

I'm in ND, Fargo actually so spitting distance of MN.

I have no expensive toys, save a nice bike that was given for free.  Furniture and clothes have little value, and I make less than 40K for sure.

I'd have to add up the debt buts its at least 5k.

That isn't very much - maybe a program like mjsophia mentioned would be the better option.  The ex's and I's credit cards alone were over 70K  I had bugged him for about a year to let us file bankruptcy but he kept saying he'd work it out.  Then we got served with a summons to pay off the credit cards 28K by such and such a date ( 2 weeks) or else - that was when I called the attorney. 

I know sometimes credit card companies will offer you a 50% buyout on the balance but you have to have all that to pay them and also the 50% they are giving you is taxable income but if your taxes aren't too much that might be an option as well.  Also coming up with a large sum of money in a month is a challenge.