Bankruptcy. The word sends shivers down the spines of most Americans. Unfortunately, bankruptcy is rapidly becoming the reality for many hardworking folks due to the recent downturn in the economy. When my husband and I first decided to take this path, we had a lot more questions than answers. As the process unfolded, however, I found myself thinking, “I wish I had known this ahead of time” more than once. Here, I will take you through our realities and hopefully open your eyes a bit to exactly what goes on in the mysterious world of financial ruin.
How did you get here? My husband and I married three years ago. He was self-employed and making good money ($4000-$8000 a month) in the auto repair industry. I was a teacher making, well, teacher money ($3000 a month plus benefits). We had one child a piece from previous relationships, and he was paying child support while I received child support. Things were pretty stable. Unfortunately, we lived without a budget. After buying a boat and leasing a very nice SUV, we found our bills quickly catching up to our income. That was when the bottom fell out — the economy crashed, and no one was buying cars anymore. We became a one-income family, living off of my meager teacher’s salary.
What were the low points? We had to ask my parents for money to pay for extravagances we couldn’t afford. The boat was repossessed, and I didn’t feel too bad about that, because I felt it was a luxury. On the other hand, I had to have a car to get to work, but I felt stupid paying $800+ a month when I could barely buy groceries. We also were pregnant with our first child together, and we spent the day of delivery begging the landlord to wait a few days for her rent payment on our house. It was humiliating at best.
What made you finally decide to file bankruptcy? Oddly enough, it was an upturn in our financial situation that pushed us to that final step. My husband regained his job that was doing so well for him in the past, but we still had all of the months of credit card and medical bills piled up. We knew that if we didn’t file soon, we would not meet the debt-to-income ratio required to file bankruptcy.
What were the first steps like? The first meeting with the lawyer was a free consultation, and he looked over our financial information and encouraged us to file (surprise, surprise). He then told us we needed to give him a $400 retainer fee in order to begin the process. My parents paid for this, and the retainer enabled us to tell all creditors to “refer their inquiries to our lawyer.” That felt good, I’m not going to lie. We were getting calls day and night from collections agencies, and this made them stop once and for all.
How did you complete the process? The next step was to complete the pre-bankruptcy debtor’s course. I thought this was kind of a joke. We paid about $25 to do an online class that explained what bankruptcy was, how it would affect us, and gave us some lame financial advice. After that, I had to do all of the paperwork. We’re talking who you owe money to, how much you owe, what the creditor’s address is, what the debt was for, etc., etc., etc. This process felt endless to me. On the bright side, it was all online, so I was able to click and submit it to our attorney.
So, was that it? Not quite. We then met with our lawyer and were in for a bit of a surprise. We knew that we still owed him $800 for the rest of his fee, but we didn’t realize that each additional creditor over 10 would cost us $35 a piece. We had a LOT more creditors than 10, so our final bill was about $2000 instead of $1200. Again, thank goodness for my generous parents who wanted to help us complete things as soon as possible. We paid the fee and waited for further instruction.
What about the trustee meeting? This part made me nervous. We met our lawyer at the courthouse in a little inconspicuous room at the end of a long hall. There were about 4-5 people already there, and I was thinking, “Uh-oh. Are these some of our creditors?” While creditors are welcome to come to these meetings, they very rarely do. It turns out that the other people were just other poor saps there to do the same thing as us. When it came to be our turn, we sat at the trustee’s desk with our attorney and affirmed that we were telling the truth in our paperwork. He asked a few questions and dismissed us. The whole meeting took less than 15 minutes.
What were the final steps? After the trustee meeting, we signed a couple of letters reaffirming debts on our two cars (no, not the luxury SUV — my husband bought a sensible SUV and work van just before we filed bankruptcy) since we wanted to keep them. We then had to take a pre-discharge course online, and we chose to do the Dave Ramsey class. This class, in contrast to the last class, was excellent. It gave us lots of great tips for keeping ourselves out of future debt and establishing financial stability again. After completing the course, we submitted it to the court and were sent discharge papers.
What is your credit outlook now? The actual process of bankruptcy was not as difficult as I had feared, but it did have ramifications on our credit. As of a few days ago (4 months after discharge), my husband and I have credit scores in the high 500s — bad, but not horrible, considering we could get an FHA home loan with a score of 620. We were denied a lease on a house due to our credit and had to find a private landlord willing to take a chance on us. On the whole, we have a lot more peace of mind, but we also know we cannot afford to mess things up ever again.
If you are considering bankruptcy, take heart: it probably won’t be as bad as you think. No one will likely come and take all of your furniture or jewelry, and not everyone in town will know what you did. Bankruptcy will, however, affect your credit for a while after you file, so make decisions carefully. Good luck!k