Filing bancruptcy?

Question

Hi, we have a family member, 21 now, who is in pretty bad credit card debt and debt with some hospital bills. She has zero money in the bank and has not been able to work for months due to being in the hospital. I am not sure the amount of money she owes, but I know she has some collection agencies after her, plus she is way overdrafted on her checking account. I would say she has a total debt anywhere between $10,000-$20,000.

Now, she is able to work at the moment, but there's no way she is able to support herself and pay these bills also.

WHat would she typically expect if someone in her position filed for bancruptcy?

Please don't tell me to tell her to see a lawyer. I already know that. Just want some feedback from anyone who has recently done this or knows about what would happen.

Answer 1

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

With limited exceptions, people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within 180 days before they file. They also must complete a debtor education course to have their debts discharged.

As a rule, pre-bankruptcy credit counseling and pre-discharge debtor education may not be provided at the same time. Credit counseling must take place before you file for bankruptcy; debtor education must take place after you file.

She would have to first take a means test to see if she qualifies for Chpt 7.

The means test was added to the Bankruptcy Code to create objective standards for determining which individuals are "worthy" of relief in Chapter 7. It applies only to individuals and only those individuals whose debt is primarily consumer debt.

The means test is calculated comparing the debtor's average income for the past six months (current monthly income), annualized, to the median income for households of the same size in the debtor's state of residence. If the debtor's income is less than or equal to the state median income, the debtor "passes" the means test and may file Chapter 7.

Chapter 13 is frequently a better choice if you have debts that are not dischargeable in Chapter 7;  if you are in default on mortgages or car payments; if you have more property than can be exempted from creditors in Chapter 7; or if you owe taxes  or other debts that are not dischargeable in Chapter 7.  

To be eligible for Chapter 13, you must have regular income and debts below a certain level.

And as you mentioned, this is not something to take lightly and without proper counsel.

Here is a link from the FTC to locate a counselor in her area to help with this

http://www.usdoj.gov/ust/eo/bapcpa/ccde/...

Govt approved credit counseling agencies.

Hope this answers your question

LEGAL DISCLAIMER:  The advice contained herein is for informational purposes only.  It is not to be construed as Legal Counsel nor Legal Advice.

Answer 2

Cooperation and communication with the credit companies and collection agencies will be her saving grace. Usually collection companies will settle for a lesser amount and with installments. After about 5-6 months she absolutely should be stabilized, put a few thousand,$ 2000-3000 away for an emergency fund and maybe should consider a roomate while she goes to college.

Current Chapt 7 laws will not allow her to deduct hospital bills. but I don't believe they gain interest over time but they must be paid. She wants to sign up for full med/dent at her employer.

Most people call us generation debt, so she shouldnt feel too bad. just know that she is not alone and now that she is able, read Rich Dad poor dad by robert kiyosaki, who is rumored to have filed bankruptcy, or watch a video by suzan orrman called generation debt, that will give her a lot of info on proper credit management.

She could file bankruptcy but the consequences vary depending on the damage already done to her credit, from having to wait between 2-7 years to buy a home, higher interest rates everywhere, and having to put a large amount of money down on anything.