Bankruptcy - the new "stimulous package"?

[draggar]

My wife and I know at least 8 people who are filing for bankruptcy. Here in the US people generally have two chapters they can file under:

Chapter 7 - All debts are erased. Each person is allowed roughly $1000 in resale value of "stuff" for their own (clothes, computer, etc..). All private debts are erased and as long as you keep up with your mortgage and car payments - you don't lose either (and as long as you owe as much or more than what your car is worth). Families making under $50K a year also get extra provisions.

Chapter 13 - Debts are not erased but a payment plan is worked out at a severely reduced rate - instead of $2000 a month, you're paying $300-$500 a month (this includes all private debt, mortgage, car payments) but you keep everything.

Both chapters bank accounts are not touched unless it is a large combined amount.

So, they file for bankruptcy and as soon as they start the filing, they stop paying their debts. This means that they now have a large chunk of change they have extra each month. No, they won't get credit cards but what they'll buy will be purchased with cash or debt cards (or checks). This is pure cash being cycled though - not credit (which IMO is stronger). More cash = more spending (even if they save more, they'll spend more).

Banks are getting their bailouts from the government (anywhere from $700 billion to $7 trillion) so they won't be hit that hard by this.

My wife and I did the math - if we filed for chapter 7 (which we qualify for) we would save roughly $1000-$1300 a month (still paying mortgage, car, (government subsidized) student loans, utilities etc..) from what we were paying in private student loans, credit cards, and a few others. Honestly, we don't think we have $2,000 worth of stuff (resale) in our house since they don't touch pets or things like food etc. We'd also keep the cars and the house. With chapter 13 we'd save about $1000 but no fear of losing anything.

Yes, it does stay on your credit report for 7-10 years but some people who filed earlier in the year started to get applications (and approved) for credit cards plus you'll have a lot of extra cash on hand (if you're smart and save up) for a much larger down payment on a car or a new home.

Thoughts?

[000]

If honor, responsibility and legacy mean something to you, pay your debts. If you're in favor of entitlement and the decline of western civilization, declare BK and pop the champagne cork.

[draggar]

It goes beyond responsibility for a lot of people. Most of these people didn't rack up a huge amount of debt with luxuries just to declare.

For example, my wife has been without a job for 7 months now. Its getting to the point that we need to choose between our mortgage payment or a credit card payment (and we've used the credit cards for necessities - food, car repairs & maintenance, etc..). Its a no brainer which one we'll choose to pay, and it's the same with the car payments.

It sucks, yes, it's not what these people wanted to do but most of them are glad that they did it now.

[James]

.

Thoughts?

I'd say talk to a bankruptcy lawyer and since yor in FL check
http://www.flmb.uscourts.gov/

G/L
jim

[clemzonguy]

You will always have to answer that one question:

"Have you ever declared bankruptcy?"

[fab]

If honor, responsibility and legacy mean something to you, pay your debts. If you're in favor of entitlement and the decline of western civilization, declare BK and pop the champagne cork.

Well put, how sad!

[draggar]

I'm finding two very strong responses to this (and it's being discussed on other forums I frequent):

Those who are dead against it
and
Those who are facing the possibility of having to file

It's looking like one of the taboo subjects that people really cannot answer unless they are facing it themselves - opinions and beliefs can radically change when your personal life changes as much.

[Gerry]

If honor, responsibility and legacy mean something to you, pay your debts. If you're in favor of entitlement and the decline of western civilization, declare BK and pop the champagne cork.

Lord, the seriousness and the hilarity of the tone of this response.

Thank you for making my morning. I almost spewed coffee.

Love it!

[000]

I almost spewed coffee. Love it!

No problem. Next time I'll aim for a full spew.

[fab]

I'm finding two very strong responses to this (and it's being discussed on other forums I frequent):

Those who are dead against it
and
Those who are facing the possibility of having to file

It's looking like one of the taboo subjects that people really cannot answer unless they are facing it themselves - opinions and beliefs can radically change when your personal life changes as much.
__________________

Well, hearing the way you describe your situation, mine is a lot worse!

[Gerry]

In the late 70's, I had to have emergency surgery. This required a lengthy hospital stay. I had to drop out of college, lost my sole source of income, lost my GI Bill monthly payments, lost my apartment, and lost nearly everything. I had no insurance. The hospital bill, surgical, and other medical expenses totaled nearly $70K which was a small fortune then. All bills and utilities were piling up and unpaid.

I was in my mid 20's and had no alternative but to file for bankruptcy.

Using bankruptcy should be a LAST RESORT as it is you last resort. You can not file again for that 7 year time period, getting a loan will be nearly impossible, and your options for the future will be very limited.

And, you should review the new bankruptcy law enacted (that started this economic mess and borrowing frenzy) very closely. Many things have changed and make it much tougher to file and you will potentially have to dispose of your assets. Not to mention that some court arranged payment plan will be arranged for a monthly payment to your creditors.

Using bankruptcy as an excuse for uncontrollable spending is like using abortion as a form of birth control and then just getting knocked up again.

[DomainsInc]

If you want to ruin your future to save a few bucks now, have fun. Not thinking about the future is why most people are in such a position. I feel for those who are truly losing everything but to those who are filing just to make life easier for themselves, they suck.

[Gerry]

Every one is certainly going to have different life's circumstances. And sometimes it gets to the point of running out of options.

Dragger, I certainly understand the fact that your wife being out of work for 7 months has put a hardship on you.

I just hope you are able to find options rather than this one.

A person has to do what a person has to do for the sake of survival and integrity of a marriage and keeping a house and family together. It is admirable that you have been able to sit down and rationally explore your situation.

But do review all the options, the new law, and consult a debt consolidation firm or attorney. Sometimes settlements and a payment plan can be reached without a lawyer or court ordered.

Contacting the creditors and asking for adjustments is a great option right now. They too are feeling the crunch and can not take too many more failures before they themselves take this route.