“Stigma” of bankruptcy filing
Most people are very reluctant to even consider the filing of a bankruptcy to resolve their debt problem. Their concerns are not financial (such as the possibility of losing assets or budgeting issues) but instead are emotional. These emotional issues seem to increase with the age of the individual considering the filing; the older the person, the more concern over the thought of even filing for bankruptcy.

This stigma is perpetuated by many different sources. Although the credit industry may be partially responsible (with name-calling such as “dead-beats, etc...) society in general and semantics play a significant role. For example, we use the word “bankrupt” to negatively define many different situations, (i.e. bankrupt morals; bankrupt society) and this negative connotation easily transfers to bankruptcy law. This is an unfortunate transfer, because “bankruptcy”is a neutral term that refers to nothing more than a set of Federal laws that allow individuals, businesses, and other entities to shed oppressive debt to allow them to start over.

In reality, bankruptcy law is and should be seen as a positive procedure to assist individuals out of a situation that otherwise could result in very negative consequences. Would society rather have an individual burdened with massive debt search for drastic solutions to protect his family from garnishments, levies, foreclosures, repossessions, etc..., that threaten family life and basic survival? Or would society be better served by an efficient, methodical procedure that gives individuals a dignified” way out, allowing them to preserve their basic life-style while re-establishing themselves? When seen in this light, it becomes clear that bankruptcy is not a negative procedure, but instead a positive, life affirming concept that benefits all concerned. Yes, it’s true, credit card companies (that usually compromise a large percentage of the debt) might disagree. But this cost of doing business is a necessary release mechanism for those individuals who genuinely find themselves with no other solutions and no other way out.

Those people now considering the filing of bankruptcy should think about those people who considered divorce 20 to 30 years ago. What did society think about divorce back then? People chose to stay in terrible relationships with abusive mates just because the concept of filing for “divorce” was considered a “bad thing.” Today, the concept of a “divorce” is neither considered good nor bad. Instead, It is considered to be a neutral procedure necessary if conditions mandate its use. Would someone choose to stay in a terrible marriage with an abusive spouse because of the “stigma” of filing for divorce? Why, then, would someone choose to stay in a terrible relationship with horrendous debts, when there is a neutral bankruptcy law ready and able to assist them with a fresh start?

It is now time that individuals see bankruptcy law as it clearly is. If debts have been incurred that exceed their ability to pay in a reasonable period of time, the “stigma” of filing should not be used as an excuse not to file.

Debt Counseling Companies
Radio and Television adds abound promoting various companies that claim to resolve your debt problems. They basically consist of two different methods: credit counseling companies and debt settlement companies. Each one has various problems.

Credit counseling companies (such as the non-profit “Consumer Credit Counselors”) set up a debt repayment plan with your creditors. You pay the debt back in full. The counselor may obtain a reduction in the interest rates during the duration of your plan, which is typically 5 years. The credit card companies pay the counselor to help them get fully paid. The problems with these counseling companies is that although interest may be reduced, it is reduced individually by each creditor to different amounts. Some may reduce their interest from 19.9 to 12.9, others from 15.9 to 11.9, etc... . Very few, if any, will reduce interest to a fair level (i.e., under 6%). Some will not reduce it at all. Another problem occurs if you default. Many credit card companies will immediately “default” you to an even higher interest rate than you were before you entered the program; some will re-commence collection activity against you without giving you a second chance.

A third problem is the effect on your credit score. In many cases, your credit score will be negatively affected for a period of seven years after you have completed your last payment. This will cause 12 years of negative credit rating if you remain in a 5 year plan.

A fourth problem that occurs is that some credit card companies may refuse to participate in the counseling program (it is voluntary on their part). That may result in one or more of your creditors pursuing collection activity against you while you pay monthly to the others that agree to the program. Obviously, this situation is doomed to fail.

Debt settlement companies are a different breed altogether. These companies promote that they will settle at “50%” on the dollar; “30%” on the dollar, etc. .... I have noted numerous negative experiences with these companies from my clients, who have reported various problems.

Settlement companies typically charge you a substantial fee to “enroll,” typically $1,000.00 to $2,000.00. This represents a “non-refundable” fee to the settlement company. Thereafter, you are placed on a payment plan to the company, which then charges you typically 15% of each payment they receive for “handling fees.” As you pay in, they don’t pay anybody. Your creditors become anxious and start calling and harassing you; you refer them to the settlement company who usually ignores them. Your credit reports begin to suffer from the negative reporting. After months of this activity, the settlement company will contact one exasperated credit card company and offer 50%, which, by that time, may or may not, be accepted. If accepted, you typically are again charged a fee by the settlement company averaging 25% of the amount they “saved you.” If not accepted, you probably will be sued. As you can see, these settlement companies are good at charging you plenty for their services, which are questionable at best. Check out the Better Business Bureau before you engage any of these companies. See what other people have to say. It is not unusual for the credit card company to simply refuse the proposed settlement, and proceed to sue you anyway. Good luck obtaining a refund from the settlement company. And say “goodby” to any hope of maintaining a reasonable credit record. Be very cautious with these companies.

If you really are intent on paying your bills back, the obvious choice is to use “Chapter 13." This plan is federally supervised and Court approved. Debt is paid back with no interest. Credit card companies must participate. They cannot harass or sue you while you pay into your Chapter 13 Plan. Upon completion, you will receive a “discharge,” or full resolution of all your debt. Why use a questionable debt counseling company or debt settlement company with questionable results when the Chapter 13 procedure is and has been available to pay all your debts under Court supervision and protection? See heading under Chapter 13 of this site for more information on this procedure.

Use of Bankruptcy “Petition-Preparer” or Attorney
The question of whether to use an attorney or “bankruptcy petition preparer,” paralegal, typewriting service, etc... usually comes up under the basic heading ... cost. Obviously, a non-attorney must offer their services at a reduced cost in order to entice you to consider them for their service. However, before you make a decision based on cost, you should consider a number of factors. These factors are as follows:

1. A petition-preparer cannot give you legal advice.
2. A petition-preparer cannot charge you more than $200.00 to fill in your papers.
3. A petition-preparer cannot talk to or negotiate with your creditors on your behalf.
4. A petition-preparer cannot go to the mandatory court hearing and represent you there.
5. A petition-preparer is not trained as an attorney in order to give you the benefit of the bankruptcy laws.
6. A petition-preparer cannot help you if a creditor threatens you after you file.

This is just a short list of numerous reasons you should think twice before you place this important legal task on somebody without attorney training.

The use of an experienced bankruptcy attorney is beneficial in many ways. Some of these ways are as follows:

1. An attorney can help you decide whether or not a bankruptcy filing is appropriate for you.
2. An attorney can explain the differences between Chapter 7 and Chapter 13.
3. An attorney can help you protect your assets before the decision is made to file for bankruptcy protection.
4. An attorney can respond to the court or to creditors that would attempt to contest your bankruptcy.
5. An attorney will probably charge you more than a petition-preparer, but the benefits will likely far outway the costs for the expertise you will receive in return.
   

Use of “Certified Specialist” or Attorney
The State Bar of California has designated a select few attorneys to be called Certified Specialists in consumer and small business bankruptcy law. These attorneys have devoted a significant part (or all) of their practice to only bankruptcy and related law. These attorneys have passed rigorous testing and are committed to constant legal re-training so that they can give the most up-to-date and comprehensive advice to their clients.

All attorneys licensed to practice in the State of California can give bankruptcy advice. But not all attorneys have the designation of “certified specialist” that insures that you will receive the very best and most comprehensive advice. For that advice, a certified specialist in consumer and small business bankruptcy law is where you should look and where you should rely for bankruptcy assistance.


Effect on Credit Report
One of the main reasons people hesitate in filing a bankruptcy proceeding is because they believe their credit will be “ruined.” This is not true. There are three major credit reporting agencies; Equifax, TransUnion, and Experian. Each is governed by both State and Federal law that dictates what they can and can’t do on your credit reports. The general rule is that they are allowed to report most negative transactions for 7 years from the date of your default. If you choose to file a bankruptcy under either Chapter 7 or Chapter 13, that filing will remain on your credit report for 10 years.

If you file Chapter 7 bankruptcy, your credit report should indicate not only the filing, but also that all debts owed by you now have a -0- balance. This, by itself, should assist you in obtaining new credit since you are now “debt free.” In addition, under the current bankruptcy law, you cannot re-file a Chapter 7 for 6 years. Therefore, you are technically “safer” than your neighbor who could file a Chapter 7 tomorrow.