Once, however, the creditors form the “litigious lynch mob,” talk therapy with creditors becomes futile. When indebtedness leaves the collection carousel, creditors let loose the wolves and the lawsuits begin. At the point creditors realize that traditional collection efforts have not gotten the desired result, they pull out the big guns. Ducking phone calls and collection letters is one thing, but once process servers begin arriving at the door with summonses and complaints, its time to circle the wagons. In most cases, the only tool in the box capable of thwarting the “litigious lynch mob” is the Consumer Bankruptcy Attorney.

A Consumer Bankruptcy Attorney is a cross between a “white knight” and a “father confessor.” When you meet with a consumer bankruptcy attorney, the first, and most important thing to do is to lay it all out for the attorney. Pull no punches. Don’t worry, he or she has heard it all before and is not there to pass judgment. Bring your bills and collection notices, your pay stubs, your tax returns and most importantly, your honesty. A consumer bankruptcy attorney also has a toolbox and needs to know where you are and where you would like to go, to provide you with the best advice to get you down that pathway. As your white knight, your attorney can shield you from the slings and arrows of the “litigious lynch mob” by using the power of the United States Bankruptcy Court system to stop them in their tracks and send them off with their tails between their legs. As your “father confessor” he or she needs to know how you got to where you are, what things you must keep (like your home or your car) and what things you might be willing to give up in order to end the struggle and breathe freely under the “discharge umbrella.”

After assessing your situation, your Consumer Bankruptcy Attorney will explain how the bankruptcy process works, how the various bankruptcy proceedings may be used to get you the desired result, what will be expected of you and what you should expect. Your attorney will explain how the various chapters of the bankruptcy code work and why one or the other would be the better choice for someone in your situation. Most importantly, you and your attorney will discuss the costs to you both in terms of legal fees and creditworthiness in the future. Do not be afraid to ask questions. The attorney works for you and quite often, more information is revealed through your questions than by your answers.

Upon speaking with your Consumer Bankruptcy Attorney, you should have a fairly good idea as to whether bankruptcy is right for you, what to expect and how you will be proceeding. Many folks feel that the weight of the world has been removed from their shoulders, just by having spoken with the attorney and learning that there is a solution to what was previously thought to be a never-ending problem – a light at the end of the tunnel.

Chapter 7 and Chapter 13

There are a number of things both types of bankruptcies have in common. Both can be filed by an individual. Individuals are required to file a series of financial statements and provide documentation including tax returns. There is a requirement that you take a credit counseling course by an approved agency and receive a certificate indicating you successfully completed it less than 180 days prior to filing your bankruptcy petition. A filing fee and several other fees (totaling about $300.00) also must be paid.

Chapter 7 Bankruptcy

In this form of bankruptcy, the purpose is to discharge your debts and be able to get a fresh start on your life. You basically must liquidate your assets and any proceeds from the liquidation ( the Bankruptcy Trustee will attempt to sell any assets you may have) will go toward paying your creditors. Each state has differing limits on what you are allowed to keep. For instance, you can keep one car for basic transportation, but it can not be worth too much. You’ll probably be allowed to keep a 1998 Buick, but not a 2009 BMW. You also can keep about a thousand dollars (it varies) worth of personal property. Your home is exempt in certain states (ie. Florida) from having to be sold (even if you have a million dollars worth of equity in it).

The process is a bit daunting, but, if you hire a competent bankruptcy attorney, they will guide you step by step so you won’t need to worry. First thing that is done is to file a petition with the Bankruptcy Court in the jurisdiction where you live. Next, you will be asked to fill out a series of forms containing pertinent information about your financial life. There will be a form where you list all your monthly expenses and your monthly income. Another form will require you to list all of your creditors such as credit card companies, mortgage holder, car loans and so forth. Another schedule will want you to list any rental agreements (unexpired leases) or contracts that have not yet been completed (such as a two year agreement with a cellphone provider). A copy of your tax return(s) and a certificate showing you received credit for the required financial counseling course within 180 days of filing your bankruptcy petition will complete the paperwork.

Your attorney submits the required documents to the court and a hearing is set before the Bankruptcy Trustee.
When you go to the hearing, you will be asked some questions by the trustee in a process that normally takes just a few minutes (trustees may hear 50 or more cases in one day). Assuming there are no surprises, you will receive a letter from the court in about a month or so, discharging all debts and finalizing your bankruptcy.

Chapter 13 Bankruptcy

This is a reorganization that allows the debtor to make arrangements to pay off part of his debt, usually within 3 to 5 years. A maximum limit is set for unsecured debt (currently $360,475) and secured debt (currently $1,081,400). You will be asked to negotiate new payment arrangements with your creditors based on your earnings and ability to pay. The Trustee will decide what is fair (usually 50% or so of the full amount). Each month, you will submit a lump sum, like a consolidation loan, to the trustee, who will then pay each creditor according to plan. The major advantage in this form of bankruptcy is being able to save your home from foreclosure. Additionally, you can take some solace in knowing you are at least paying back some of your debt.

In summation, file a Chapter 7 to liquidate all debt and file a Chapter 13 to create a repayment plan that will forgive some debt and give you time to pay the rest.

The first way to improve your credit score after bankruptcy is to open a secured loan or credit card. After declaring bankruptcy your credit score will decline significantly and most banks will be unwilling to offer you a loan or line of credit. Luckily, you will be able to get a secured loan or credit card. These forms of credit will require you to put money into a bank secured account and the bank will then offer you a loan or line of credit while using your money as collateral. These accounts are beneficial because they not only come with low rates and fees, but each payment you make back to the bank will be reflected on your credit report and improve your score.

If you do not have the liquidity to put forth for a secured credit card or loan, you could improve your credit by getting a co-signor to sign your loan. A co-signor accepts legal responsibility for all payments, and because of this, the bank will be more willing to approve a loan application if the co-signor has a strong financial backing. Since you will also be on the loan, making successful loan payments will also help rebuild your credit.

The third way to improve your credit score after bankruptcy would be to attempt to settle disputes with your creditors. When you declare bankruptcy your creditors will either lose all or a portion of the money they lent to you. This will then be reflected on your credit report as a charged off account. To improve your credit score, you could begin to try and re-pay your creditors. Once the balances are paid off in full, the charged off account will be cleared, and your score will begin to repair.

The most effective way to improve your credit score after bankruptcy is to change the way you handle your finances. Many people find themselves in bankruptcy simply because they spent more money than they earned. Going forward, these people could improve their score by spending less than they earn and making all debt payments on time. While it will take a few years to accomplish, this simple strategy will eventually result in you having an improved credit score.

Some people look at bankruptcy as an easy way out. If you are having serious difficulty with paying your bills, bankruptcy can relieve you of this responsibility rather quickly, giving you a fresh start. The downside to this is your credit scores are likely to take a major nosedive. Low credit scores show potential creditors that you haven’t kept up on your past promises to pay your lenders, making it very difficult to get any more credit.

If you have filled out credit applications in the past, you’re probably familiar with the question, ‘Have you ever filed for bankruptcy?’ The reality is that once you have begun bankruptcy proceedings, you will never be able to answer no to that question again. Your bankruptcy information stays on your credit report for up to ten years. One, two or even three years is a considerable amount of time. Five years is pushing it, but ten years is a whole decade. It’s important to take pause and really consider being under financial scrutiny for a large chunk of your life.

Another reason to try and avoid bankruptcy is because your personal information becomes public. Your name and social security number will be exposed as well as portions of your bank and credit card account numbers. Anyone can walk into the courthouse that contains your information and pull your file. Now the court systems have made it even easier to get information on you. Usually you can just pick up your phone and call into an automated system to get information on people’s bankruptcy cases. This should definitely be cause for concern, especially regarding cases of identity theft and other scams. Some people shy away from bankruptcy just for that reason alone.

Explore all your options before filing for bankruptcy. Debt consolidation is an alternative that can lower your monthly payments as well as bring down your interest rates. It is one of the most effective ways to pay down your bills while improving your credit. Though it may take a few years to complete a debt consolidation program, it’s definitely worth looking into. Another option is debt settlement, which is riskier but more affordable. Your financial situation will determine if settlement is right for you. Through debt settlement you are given an opportunity to pay off most of your debt, without all the fees and interest. Your credit scores will take a quick hit but in the right situation you can begin rebuilding your credit in no time.

Another alternative is to call your creditors and negotiate payment arrangements with them yourself. This has worked for some and sometimes creditors are willing to work with you. Even picking up a part time job to cover your expenses might be an option. If all these suggestions have been exhausted or are just not an option, then bankruptcy may very well be for you. Make sure you have at least considered all the other ways to pay off your debt before going down this life-changing path. Though bankruptcy should always be your last option, it is still an option and should be respected as such. When it is your last option it can offer hope where there is none. It is a path that will eventually allow you to breath life back into your financial future. It is there for the taking but it is an option that should never be taken lightly.

Truthfully, the credit future for people who have financially caved-in, or may be considering it, isn’t a bleak as we’ve all been told. Although it certainly won’t be easy, it is possible get to floating capital again—even with the black mark of default on your record— in a fairly decent amount of time. According to the Consumer Reporting Act, a declaration of bankruptcy will completely fall off of a person’s record six years after he/she has satisfied the default. When you file bankruptcy, all the things you own, including your income, become the property of the person administering the default, i.e., the bank, the mortgage company, etc. Every month, you pay a set amount to whoever is in charge of your particular case, and possibly meet other requirements such as attending credit counseling, until the bill is paid off, or “discharged.”

Once you’re done settling your accounts, your focus should shift to getting things back on track again. The first thing you need to realize is that, while the record of a filed insolvency will be noted on any statement issued by a credit reporting agency, the more time has passed since it was requested, the less it matters. So overall, a default from 10 years ago, for example, would look better in to people in a position to lend money than a more recent one of say, 2 years. What’s more, it is actually possible to be viewed as a better financial liability once you’ve gone through the deficit and repayment process than you may have been in the first place!

Next, understand that even though you defaulted in the past, there are things you can do now to help get your standings back up, and many of them are pretty simple. The first step is just to talk to someone, like a banker, and let them know you hit a rough spot but now you want to start the credit repair process to get your standings back up. He/she will likely suggest that you open a savings account of some sort, because this is a big step in fixing things. Then save, save, save and save some more: when you get paid, take a small amount, as little as $5, and put it in your savings, if you get a pay raise or a bonus of any kind, bank it. If money seems to run through your hands like water, hide it from yourself; open a whole new account elsewhere and have the money sent from the regular account straight to the new one, without you having to touch a single bill of it.

Saving is an extremely important thing to do if you want to get a charge card, one of the more common ways that people recover after financial fallout. A lot of banks now offer what are known as “secured” credit cards, where the amount of money you have to spend is directly tied to some form of collateral, like a bank account. You’re generally given the bare minimum amount to begin with, and as you show that you are able to make the payments on time, the limit is slowly increased. A similar way to resurrect your rating would be taking out a small loan, also tied to your bank account, then paying it off on schedule. Finally, remember that it takes six years for the declaration to fall off your record, and while that’s a long time, it isn’t forever. There are financial institutions that are willing to offer homeowner’s loans to people who have been exonerated for at least two years, and can show successfully rebuilt credit going back two years or longer. In these cases, the amount of down payment you are able to provide, and the stability of your income are looked at more closely than are any past deficiencies.