With the economy going the way it is, I suspect there will be a lot more people in trouble before it's over. Bankruptcy seems to be one way out. Have you ever taken it? Do you think a person should take it unless/until it was an emergency situation? What are your thoughts or experiences with it?  

 I hope that anyone who choses bankrutcy takes a careful look at the remifications. I have a friend who declared bankruptcy 6 years ago.
Don't ask me how by she the bought a condo 2 years ago and has a 12% mortgage on it that she cannot renegotiate...it is killing her. Maybe some of the new government plans wil help her.She also has a high rate on a car loan.

She does not understand why. No one can explaie it to her. But I sure wish someone had 6 years ago.

Please Please Please do not do it because some lawyer says t is your only way out. There are other options. Not pretty ones but options.

I worked for a very ethical lawyer whose specialty was bankruptcy and consumer law. Here's what I noticed:

There are people from all walks of life who feel that bankruptcy is the only solution to their financial troubles. I have dealt with millionaires (who had multi-millions in debt) to single moms who just can't seem to get ahead in their finances. We had one client who was a single mom to an adult special-needs child. She ended up with some emergency medical bills and just couldn't seem to get them paid off. We also had a few clients who were up to their neck in student loans. (Note: it was my experience that student loans are not dischargeable in bankruptcy. They must be paid off.)

There are lots of people who are declaring bankruptcy lately. They lived beyond their means when the economy was great, then had to pay their debts and couldn't. Bankruptcy law runs counter-cyclical to the rest of the economy--that is, when the economy is great, bankruptcy attorneys don't have a thriving practice. When the economy takes a downturn, they have more clients than they know how to help.

It is my personal opinion (take that for what it's worth) that bankruptcy should be a last resort. I think that it is unethical to declare bankruptcy in most cases, except those where sudden tragedy strikes an otherwise responsible person who genuinely makes efforts to pay his debts. (Medical emergencies or loss of child support, for example.) That is just my opinion, from what I observed working for the bankruptcy attorney.

There have been several changes in bankruptcy law over the last few years to make filing for bankruptcy stricter. From what I saw, they were good changes and helped to keep people from taking advantage of bankruptcy discharges.

slk2042:

There are lots of people who are declaring bankruptcy lately. They lived beyond their means when the economy was great, then had to pay their debts and couldn't.

 

That was what I was thinking and the farther we go, the more bankruptcies will be declared. 

slk2042:

It is my personal opinion (take that for what it's worth) that bankruptcy should be a last resort. I think that it is unethical to declare bankruptcy in most cases, except those where sudden tragedy strikes an otherwise responsible person who genuinely makes efforts to pay his debts.

 

I agree. If a person borrows more than they can comfortably pay off, they need to do whatever they have to do to get it under control. Bankruptcy shouldn't be an easy way out. You mentioned the laws changing to make bankruptcy harder to do. I vaguely remember something about that, but not exactly what the changes were. 

Here you used to be able to get rid of student loans and child support arrears but they changed that law for obvious reasons.   You can get rid of student loans by bankrupty still only if it is from before the date the law changed.    also if you are not working in the profession that you got the student loan originally.   for example you got your teacher's degree and you are teaching.   Before you could only get rid of the student loans if you couldn't get a job in that field and I think it was a couple of years after the loans matured.

The only way I know to get out from under student debts is to become totally and permanently disabled.  The bank has to write them off. 

Medical expenses and unexpected job loss are about the only thing I can think of to justify a personal bankruptcy. Even with medical insurance people with serious illness can still run up six-figure debts and that certainly isn't something anyone can control. And someone can become disabled from illness/injury and be unable to work. Such things can happen suddenly and leave people, especially younger people who haven't had time to build up any savings, with a pile of debt and no income through no fault of their own.

However, I have little sympathy for those who have borrowed for vacations, expensive furniture and the like and simply won't plan ahead.

There was a time when bankruptcy was embarrassing even if you had legitimate reasons for filing. Now, if your living from paycheck to paycheck because of mismanagement, bankruptcy is an easy way out. Because so many have done it already, the stigma is gone. If credit scores meant anything in the first place, they wouldn't have abused their credit. I know one couple who told themselves "They deserved all the stuff they bought" and when they were forced to file the attitude was "Oh well, we screwed up, but God forgives and the bankruptcy is a blessing" There was no accountability and no interest in finding out where they went wrong. For some people its easier to go through the hassle of filing for bankruptcy than it is practice good fiscal management.

Friends of mine who have done this in the past were sorry they did it after the fact.  They were then considered high risk and could not get the lowest rates on credit cards, loans, etc.  Recovery took a very long time.

I did have friends who used credit counseling and that worked better, but they had to cut up and not use their credit cards until everything was paid in full. 

Lately I have been watching Daily Buzz in the mornings and one of their advertisers is FreedomDebt.com (I think that's correct) and they have been on as a guest.  Apparently they renegotiate very high balances with the credit card companies and can get amounts down to something like 40% of the total owed.  It's been awhile since I saw the interview, but I did think of some of our struggling Forumites.  I'm not affiliated with them and haven't visited their website, so not sure of what rules might apply.  But this kind of service sounds like a much better alternative than bankruptcy. 

Dear Lynnea, I'd like to caution everyone who wants to use a credit conosolidation service to be sure that the agency is ethical. There are a lot of rogue firms out there.  Nobody can change true items on a credit report -- "credit repair" is a come-on. 

The honest firms are members of an association -- maybe someone else knows the name of hte association.  They have to meet certain critieria.

Yours in Him, Deb