Whereas once lawyers would analyze debtors' financial situations, now, a bureaucracy has been created.  Now we have credit counseling agencies to evaluate if a person is in trouble, and if feasible, suggest a repayment plan.

    The simpler analysis is when you have staggering debt.  This debt would typically be more than $5,000.00 to $10,000.00, depending on your individual hardships, upwards of $10,000 for the most upwardly mobile individuals, or even less than $5,000.00 if you are disabled or chronically unemployable.

    First, you must evaluate if your financial situation is going to remain relatively the same.  In other words, you are not going to obtain an advanced business or professional degree, a significant job promotion, inherit money from an impending death or probate case, etc.  If that is the case and you are spending all your money just on day-to-day living expenses with no extravagances, you should file bankruptcy and file it quickly.

    Basically, if you are just chasing interest, you should file bankruptcy when you can’t pay down your principle in a reasonable period of time.  A reasonable period of time would be 3-5 years, so divide the principal by 36 or even 60, and add it to your interest.  If you can make that payment and live without having your lights shut-off and CSB taking your children, seriously, then the bankruptcy may be avoided.

    You may avoid the bankruptcy if you can call the creditors and cut deals with them.  Don’t pay debt consolidation agencies to do this for you and then sometimes, not pay any creditors at all.  Either it's feasible and creditors will play ball or not.  I’ve seen too many people pay debt consolidation agencies thousands and end up going bankrupt anyway.  Quite possibly, just because one creditor is going to litigate no matter what.
 

    Sadly, with all of the government’s good intentions by forcibly imposing credit counseling, and letting this bureaucracy supposedly protect un-savvy debtors, it takes a good lawyer to counsel folks if they are “judgment-proof” and don’t need to go bankrupt.  I have seen some exceptions to this when “judgment-proof” people refuse to get a new phone number because they have had the same one for over 10 years, etc., and they do not want harassment, or they are told that they need to file a bankruptcy in order to rent an apartment.

    Aside from this, some debts "grey-out" because of age, statutes of limitations, etc.  Never agree to pay or send a partial payment to a creditor without considering that you may be resurrecting a statute of limitations which will expire on year 10 and you are on year 9 (especially credit cards from S.  Dakota).  You can start the whole period over.  For that matter, most debts can only remain on your credit reports, by law, for only 7 years.  Remember that when you answer the phone, write, or communicate with a creditor, you are telling them that you are alive, that you have a working phone number and/or address, and that you have money to pay for that phone and place to live.  Creditors use this information to prioritize their collections efforts and lawsuits.  Only a lawyer can tell you if a debt is still collectable after a period of time.

    Remember, a Bankruptcy can remain on your credit record for as much as 10 years.  It affects not only your ability to get future loans, but possibly, future rates on loans.  That being said, around the year 2000, the credit reporting agencies had a meeting of the minds that they were treating bankrupt individuals to harshly in their credit evaluations.  The karma was then changed because, by going bankrupt, future creditors now know that you do not have any other senior creditors and that you now have more discretionary income with no fear of garnishment or other repayment.  This improves your debt to income ratio.

    Many of my clients, just by virtue of filing the public bankruptcy, receive pre-approved credit applications and pre-approved car loans in the mail.  Also, many of my clients experience a credit rebound in terms of apartment rentals, car loans, and even mortgages when the bankruptcy case closes with a discharge.  Mortgage companies typically want you two years out of your bankruptcy, although, it is not unheard of that some will give you a mortgage right out of bankruptcy or one year out of bankruptcy, if you are willing to pay an extra percentage.

    In bankruptcy, you can actually reaffirm certain debts, like you house or car, take them out of the bankruptcy, and actually have that great payment history and credit worthiness as a gold star on your credit reports.

    After you get your discharge, you will file disputes with the credit reporting agencies on all your debts prior to your filing the bankruptcy (unless you paid it and it looks good).  This will greatly help clean up your report.  While your at it, dispute misspellings, etc.  Get three perfectly accurate reports.

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