What You Should KnoW before
You file for banKruptcy
A SurvivAl
Guide
to Pre-BAnkruPtcy
Material adapted from Mitchell Allen’s
A Survival Guide to debt
is publication is designed to provide accurate and authoritative information in regard to the
subject matter covered. it is sold with the understanding that the publisher and author are not
engaged in rendering legal, accounting, or other professional services. if legal advice or other
expert assistance is required, the services of a competent professional should be sought.
published by Greenleaf book Group press
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copyright ©2010 Mitchell allen
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mission from the publisher.
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10 11 12 13 14 15 10 9 8 7 6 5 4 3 2 1
first edition
contentS
Introduction 1
First Steps to Fixing the Problem 4
delaying foreclosure 5
Stalling repossession 6
dealing with creditor calls and Mail 7
Consumer Protection 10
e fair credit reporting act 10
e fair debt collection practices act 12
e fair credit billing act 12
Taking Stock 14
Monthly cash flow Statement 14
types of debt 17
Your Situation, Your Strategy 22
handle the debt on your own 22
credit counseling 28
debt Settlement 30
personal bankruptcy 32
Bankruptcy Myths and Facts 33
Myth: bankruptcy is for irresponsible people or losers 33
Myth: bankruptcy is for people Who are flat broke 34
Myth: bankruptcy results in losing everything 35
Myth: i Will never recover from bankruptcy 35
Myth: filing bankruptcy Will cause Me to lose My Job 36
fact: bankruptcy Makes creditor calls Stop 37
fact: bankruptcy halts foreclosure 38
fact: bankruptcy allows you to Keep certain assets 39
iv Debt Education and Certication Foundation
fact: bankruptcy can Give you a fresh Start 39
fact: bankruptcy is not an immediate “clean Slate” 39
fact: bankruptcy cannot relieve you of
certain obligations 40
Chapter 7 Personal Bankruptcy: Liquidation 42
1. analysis of your financial affairs 43
2. talking with an attorney 43
3. completion of an approved credit-counseling course 45
4. filing the case with the court 45
5. e 341 Meeting (creditors’ Meeting) 46
6. pre-discharge debtor education course 47
7. discharge 47
Chapter 13 Bankruptcy: Reorganization and Repayment 48
1. analysis of your financial affairs 49
2. talking with an attorney 50
3. completion of credit counseling 51
4. filing the case with the court 51
5. e 341 Meeting 51
6. approval by the court 52
7. repayment period 52
8. pre-discharge debtor education course 52
9. discharge 53
if you are unable to Make payments 53
Dealing with the Root Causes 55
resources for financial education 55
What now? 58
dear decaf Student,
if you are reading this booklet, you are likely considering or are in the process
of filing for bankruptcy. and if you are considering filing for bankruptcy, you
have been facing some difficult financial decisions in your life. bankruptcy
may be the solution to your financial problems—or it may not be. at is
why the first step in the bankruptcy process is to educate yourself about your
options. and you do have options.
regardless of why you are in your current financial situation, there is a
path back to financial security. remember: you are not your debt. is booklet
is designed to give you supplemental material to the course you recently com-
pleted. it will provide you information and resources so you can emerge from
your current financial situation stronger and better equipped to deal with your
finances. ough all of the material here may not apply to you, my hope is
that much of it will, and that you will use it to make the best choices for your
situation and your goals.
i wish you and your family the very best.
Good luck,
introduction
debt education and certification foundation, or decaf for short, is an
executive office of the united States trustees (eouSt) approved* provider
of pre-bankruptcy credit-counseling courses and post-bankruptcy personal
financial courses. decaf is not a law firm and offers no legal advice. please
consult with an attorney if you have any questions about filing bankruptcy or
bankruptcy alternatives.
e unpleasant fact is that a number of factors—some of which you may
have been able to control and some of which you probably couldn’t—have
landed you in the middle of serious money problems. perhaps you are a small
contractor who lost a key client to competition or unexpected government
regulation; or maybe you worked for the same corporation for twenty years
and have watched helplessly as tough economic times hammered the value of
your stock or destroyed your pension; or maybe you’ve lost your job and haven’t
been able to find work for months; or maybe you didn’t have health insurance,
were in a serious accident, and now have medical bills that you have no hope
of being able to pay. or maybe, like many
americans, you have a history of living
beyond your means and your spending
habits have caught up with you.
regardless of the reasons behind your
financial troubles, you should know that
you are not alone. More than 70 percent of
americans live from paycheck to paycheck.
a survey we recently conducted emphasizes the complexity of the causes
of financial problems. ose we surveyed about why they were considering
bankruptcy gave the following reasons for their money problems:
* approval does not endorse or assure the quality of a provider’s services.
More than
70 percent of
Americans
live from
paycheck
to paycheck.
2 Debt Education and Certication Foundation
• Unexpectedexpenses—77percent
• Unemploymentorbusinessloss—70percent
• Unnecessaryspending—50percent
• Illnessorinjury—38percent
• Divorce,separation,ordeathofalovedone—29percent
• Addictions(includinggambling)andotherreasons—7percent
you may notice that these percentages add up to more than 100 percent.
Many people cite multiple factors contributing to their financial problems.
Money stress—sometimes caused by job loss or problems with a business—often
leads to marital problems or can cause a person to develop dependency on drugs
or alcohol. no matter how you analyze it, money problems are often complex and
can involve multiple factors. let’s take a more detailed look at the causes cited.
• Unexpectedexpensesorstraightup“badluck”aictasurprisingnumber
of people. We can mitigate some of these causes of financial trouble by
educating ourselves on financial matters, but sometimes events are out
of our control and we just have to roll with the punches, as when two
family vehicles die in one month.
• Job loss or other reduction of income, especially in a weak economy
where new or extra work is difficult to find, quickly creates financial
shortfalls. and most people in america either don’t or aren’t able to fol–
low the standard financial advice that says we should all have three to six
months’ worth of expenses in savings to fall back on when this happens.
• Unnecessaryspending,poornancialdecisions,andbadspendinghab–
its can be a result of a lack of discipline or an inattention to one’s finan-
cial situation. Many people engage in these activities to fill emotional
voids in their lives.
• Seriousmedicalproblems,evenwhencoveredbyinsurance,candrain
savings and income and lead to large debt balances. and if you’ve lost
your job, you may have also lost your health insurance or your ability to
a Survival Guide to pre-bankruptcy 3
pay for health insurance. at the same time, poor health compromises
earning ability, either because of disability or because of extended leave
during treatment.
• Divorceordeathofawage-earningspouseoftenreducesavailablehouse–
hold income by at least 50 percent, but usually only reduces expenses
by around 20 percent. if a family with a high amount of debt and/or
very little savings suffers a divorce or separation, financial problems,
including the outright loss of home and other important property, usu-
ally aren’t far behind. furthermore, these events—especially divorce—
can force someone into the workforce without adequate preparation or
skills. and if a spouse has died and did not have adequate life insurance,
even the cost of the funeral can send a family into financial turmoil.
• Addictions(includinggambling)canquicklyerodeyearsofsavingsand
even more quickly result in unemployment.
Sometimes, financial trouble is like the elephant in the room: it’s crowding
out everything else in your life, but it’s the last thing you want to talk about. you
don’t even want to admit that it exists. but you need to remember the old saying
about the way to eat an elephant: “one bite at a time.”
no matter how bad things are for you right now, don’t lose heart. you are
not your debt! Whether you got into financial trouble because of poor decisions
and bad financial management, or whether you were thrust into it because of cir-
cumstances beyond your control, your self-worth as
a person should not be measured by your past-due
balances or your lack of sufficient income. once
you know the various courses of action available to
you, you’ll be more able to focus on a plan for your
future rather than simply worrying about things
you seem helpless to do anything about.
is booklet will help you learn how to go from being a passive, avoidant
victim of debt to being a proactive, confident debt survivor.
and that is a great feeling.
You
are not
your
debt!
F i r St St e PS to F i x i nG
the ProBleM
When you’re sick and you go to the doctor’s office, the first thing he or she asks
is usually something like, “So, what seems to be the problem?” you then describe
your symptoms so the doctor can figure out what treatment to recommend.
debt trouble is a lot like being sick. e problem is, many people can’t or
won’t admit to themselves that they have this particular illness until they’re
already in the financial equivalent of critical condition. What could have been
handled in the early stages with a few simple preventative measures now requires
admission to the financial icu.
eventually, of course, debt trouble will reach the point where it can no longer
be ignored. and that probably describes your situation. you are in financial stress:
getting increasingly stern warnings from creditors in the mail; receiving creditor
calls; maybe facing the loss of your car, your home, your business, or other assets.
So you have been forced to admit that you have a serious problem.
to get out of the trouble you are in, you have to realize that you are respon-
sible for taking action to improve your situation.
you are reading this booklet, which means that you are already headed down
that path.
if you’re bleeding to death financially, the
first thing you need to do is apply a tourniquet
so that you can buy enough time to address
the underlying issues that got you into trouble
in the first place. you may have already taken
some critical actions to address the problems
You have
to realize
that you are
responsible
for taking
action to improve your
situation.
a Survival Guide to pre-bankruptcy 5
discussed below, but let’s explore some of the first steps you can take to improve
your situation right away.
delAyinG ForecloSure
for most of us, losing our home to the bank is probably the thing we fear most,
and with good reason. our homes are usually the single largest and most valuable
asset we have, and they provide an essential need: shelter. if you’ve reached the
point where your mortgagor is threatening or has initiated foreclosure proceed-
ings, that’s the first thing you must address.
communication is your most useful tool as you work your way out of debt.
now is the time to begin using it.
call your mortgage lender and tell them about your circumstances. tell
your lender, who does not want to foreclose on your home, about the problems
that are leading to nonpayment. if you are honest and forthcoming in your
explanation, your lender will almost always work with you on a reasonable plan
to help you get current. foreclosure is expensive and time-consuming—for
both parties involved.
e important thing to remember is that your lender wants to hear from you.
a lender’s favorite form of communication is a full payment received on time, but
if that is impossible for you, by all means, communicate this in some fashion. a
call from you asking for additional time to work things out is vastly preferable,
from your lender’s perspective, to no communication at all.
for more information on what you can legitimately do to delay foreclosure,
read the report by the federal trade commission called “Mortgage payments
Sending you reeling? here’s
What to do,” available at www.
ftc.gov (just type “mortgage reel-
ing” into the search box).
Most people don’t realize that
filing for bankruptcy protection
may stop or stall foreclosure.
Communication
is your most useful
tool as you work
your way out of debt.
Now is the time to
begin using it.
6 Debt Education and Certication Foundation
Caution: Avoid Foreclosure Scams
don’t allow your panic over possible foreclosure to stampede
you into responding to one of the many scams that promise to
halt foreclosure. ese fraudulent schemes may promise to save
your home, even offering a money-back guarantee. e prob-
lem is, by the time you realize they aren’t going to do what they
promised, your money—and, sometimes, what is left of your equity—has van-
ished. e federal trade commission has more information on avoiding scams.
Go to www.ftc.gov and type “foreclosure scam” into the search box to find the
publication “foreclosure rescue Scams: another potential Stress for homeown-
ers in distress.”
StAllinG rePoSSeSSion
following closely behind our homes in importance are our automobiles. usu-
ally, car payments are second only to house payments in our chart of monthly
expenses. if your lender is taking steps to repossess your car, there are some things
you can do to give yourself a little more time as you form a plan for getting out
of debt. here again, communication is at the top of the list.
although repossession of a vehicle is easier for a lender than foreclosure on
a mortgage, it is still a costly process that the lender would much rather avoid if
it thinks there is a reasonable alternative.
call your lender and explain your situation. if you can send them even a par-
tial payment, let them know that. if
you’ve fallen on hard times, give them
specific information, especially if you
think you’ll be in a better position in
the future. if you agree to send a pay-
ment or even something as simple
as calling back in three days to give
them an update, follow through.
Repossession is
a costly process
that the lender
would much
rather avoid if
it thinks there
is a reasonable alternative.
a Survival Guide to pre-bankruptcy 7
again, filing for bankruptcy protection may stop or stall the repossession
process.
deAlinG with creditor cAllS And MAil
creditor calls are no joke, especially if those creditors are contacting you during
working hours. fortunately, recent laws governing debt collection have greatly
improved debtors’ ability to protect themselves from harassing or threatening
calls from creditors.
Asking creditors to Stop calling you at work
if you’re fortunate enough to be gainfully employed, the last things you need are
the distraction of stressful calls and the potential embarrassment and/or disfavor
with your employer they can cause.
asking creditors to stop calling you during working hours sounds ridicu-
lously simple—and it is—but many people just don’t realize that they have this
