Stressed About Bankruptcy? Check Out Your Options and Get Professional Advice

Have you come to the point where you feel like you’re drowning in debt and you don’t see a way out? Maybe you’re embarrassed at the idea of filing for bankruptcy. And you might be asking yourself how you even got into this place.

Everything you’re feeling is legit. So start there. Understand that often there are forces outside our control that bring us to our knees. And sometimes there are things that we do to ourselves.

Then one day you wake up and understand that something needs to change. And if your debt is unmanageable, you take that first step to deal with it so you can leave the past behind and move forward.

If you’re thinking of filing for personal bankruptcy, know your options. There are two types of filings: Chapter 7 and Chapter 13. Chapter 7 completely erases your debt (with some exceptions). Chapter 13 restructures your debt so you can pay it off under the supervision of a trustee. If your house is in foreclosure, a bankruptcy filing will stop the house sale (unless the bankruptcy petition is dismissed). The court has to approve any plan in Chapter 13. Both filings will end up on your credit reports and public records.

As a trained paralegal, I can’t stress how important it is for you to research and interview attorneys. This might seem obvious, but look for one that has experience with personal bankruptcies. If you know people who’ve filed, ask them for a referral. You can also contact your local bar association or a legal clinic.

Quick Chapter 7 Overview

Chapter 7 requires that you sell some of your property to pay off debt. Property you can keep is exempt. Property that you will be obligated to sell is non-exempt. You may be able to keep property such as your home, a car, furnishings and other items. Property that you may be forced to sell could include a second home, boats, art and jewelry. You may also be able to keep your retirement accounts.

The court-appointed trustee will do a review of assets and make a determination. Just filing for Chapter 7 will show up on your credit report and public record. Filing is the first step. A COMPLETED Chapter 7 bankruptcy will stay on your public record and your credit reports for TEN YEARS from the date of filing.

Quick Chapter 13 Overview

Chapter 13 requires you to pay back your debts. You’ll list your creditors, property and other items of value, and submit a list of all household expenses. You’ll even list whether you have pets and how much you spend on their food!

If you have a mortgage on your principal residence (the home you live in the most), your attorney will do some calculations to determine whether you can exempt your home. In some cases, you will get to keep your home. Meanwhile, the trustee assigned to your case will review your income and debts, and then approve (or not) your case. Chapter 13 will stay on your public record and credit reports for seven years from the date of filing.

Chapter 13 plans range from three to five years. This bankruptcy will stay on your credit reports and public records for seven years from the date of filing.

Should You File Without An Attorney?

Bankruptcies can be tricky. Whether you’re filing for Chapter 7 or Chapter 13, filing for personal bankruptcy can be complicated. That’s why I strongly recommend seeking help from a personal bankruptcy attorney. But sometimes we just want to do things ourselves.

First, go to the U.S. Bankruptcy Court website because this is the definitive source for information and forms. Study the sections on the basics of bankruptcy and on filing without an attorney. You can also find the court that services the area where you live. In my case, I filed with the Western District of Washington because I live in Seattle. Everything you need for filing is on the website.

Another good resource is the Nolo collection of legal guides. How to File for Chapter 7 Bankruptcy and Chapter 13 Bankruptcy will be helpful as well and the language isn’t overly complicated. The books include all the forms and will guide you step by step in the process. Laws are updated, changed and modified constantly, so you make sure you have the most recent information (and forms!) for your filing.

My Experience With Chapter 13

I never thought I would be in the position to file for personal bankruptcy. Never mind filing TWICE! I was at my lowest point in 2017 and again in 2019. The mere idea filled me with dread and I was ashamed at the thought. In March 2017, after a two-year battle with my mortgage servicer, I declared bankruptcy. To understand my options, I hired an attorney. In my case, Chapter 13 was the best choice because I wanted to stop foreclosure and keep my home. The only debts I had were a small second mortgage (about $3500) and a judgment (low six figures). Chapter 13 protects your home in most cases and creditors can’t call to collect from you. Any debts you are scheduled to pay will be put on a payment plan.

After six months, the trustee determined that my income was too low to make the monthly payments, even though I had made all of my interim payments in full and on time. By the seventh month, he recommended dismissing my case. (Some people confuse dismissal with discharge. When you complete a program, your case is discharged. An incomplete program is dismissed.)

When I couldn’t come to yet another agreement with my servicer, I went over my options with a new attorney and filed again in 2019.

Bankruptcy and Mental Health

You might be asking why, if I was able to make the payments in 2017 to the trustee, why wasn’t I able to continue to scrimp and save up so that I could pay a chunk of the amount owed? I was paying about $2600 a month to the trustee by creating a spending plan and following it to the letter. It wasn’t until a year or so ago that I realized that there could have been a way to save my home without having to sell or go through foreclosure.

But mental health challenges are tricky and only recently did I begin to believe people who said that I may have some sort of executive dysfunction. (Check out my experience getting diagnosed with ADHD). I became numb to money. The idea of losing my home made me desperate with anxiety which clouded my ability to think rationally. I felt shame and despair, compounded by the repeated phone calls and notices about being behind. I also felt extreme humiliation knowing that I failed my family.

By now my senses were dulled to my financial situation and to the idea of losing my home, and I was desperate for some sort of resolution. Even if that meant selling my home. For a time I wildly thought there would be some sort of miracle that would bring me out of the mess I’d created. But that’s not real life. When I filed for bankruptcy again in 2019, the attorney assured me that this time might be different.

I diligently made payments to the trustee, never missing the due date. I began to save money and controlled my spending. Once again, the trustee dismissed my case. I knew it was time to make what for me, was a radical decision: sell my home.

My Credit Future

I filed for personal bankruptcy twice in two years. Both cases were dismissed. My already terrible credit was made worse by having the filings show up on my credit report. Honestly, it had been at least seven years since I’d last checked my credit. There was no point. I didn’t have consumer debt and I knew that the only negative things on my report were the missed mortgage payments. I didn’t need my reports to tell me what I already knew. The numbness and sadness were stronger than my desire to care about credit.

Both bankruptcies are on my credit report and will be there for seven years from the date of filing. The 2017 bankruptcy will drop off in March of 2024, which is around the corner. The 2019 filing will drop off in March of 2026. (UPDATE: The 2017 bankruptcy dropped off my credit reports and my public record in March 2024. Hooray!)

Release Shame

The one word that comes up again and again (a thousand times again!) is shame. People are ashamed of their financial situation. They feel shame. Humiliation. Much of that we internalize but so much more is out there in the public sphere. We hear from parents and friends “Why can’t you get it together?” and from politicians, “You’re lazy.”

It’s no wonder we keep quiet about our financial challenges. Why would anyone want to open themselves up to ridicule and the anguish of being reminder of our failures?

A quick internet search will turn up articles, blogs, finance experts and others talking about life after bankruptcy. Many are positive. People got their shit under control and learned their lesson, while others continue to struggle. Trump has declared Chapter 11 bankruptcy (a way for corporations to file for bankruptcy) six times, causing lenders and shareholders to lose millions of dollars.

There are ways to avoid filing for bankruptcy. If I had taken action sooner, if I’d saved money for an emergency, if I’d…and on and on. But sometimes there is no choice. Whether out of desperation, a desire to start anew, or for another reason, bankruptcy exists for a reason. It’s a tool to help you reorganize your debt or make it go away completely. It’s a neutral financial act and has no moral implications. Society doesn’t see it that way so fuck society. Society isn’t paying your bills or helping you get out of this.

Your Financial Future

Change is hard. And even harder when you’ve grown up with a mindset that feeds off your trauma. So talk to someone. Know someone who has declared bankruptcy? Ask for their thoughts. How do they feel today? How did they like their attorney? Did they feel relief? If you don’t want to ask anyone, go online and read people’s stories about how they are working to be better with money. What are some common themes?

I bet a lot of what you see has to do with financial trauma or a lack of financial education in someone’s life. Not knowing how to manage money, growing up with parents fighting over money. No one is born knowing how to manage money in a way that helps you. But many other people had the privilege of having someone teach them. Did you?

Much of this is outside of our control. Just a short while ago we were living in a pandemic, there were massive job losses and people were competing with their children for fast food jobs. And if you’re an older Millennial or Gen X, you lived through the 2008 financial crisis.

We can’t predict the future. We can only deal with what is happening today. There are some things in your control, so make a list. Can you control your spending? If yes, then start tracking your spending. Can you save $50 a paycheck? Or sell crap you have around the house? Can you write down three goals with end dates?

How Do I Feel Today?

I hated the idea of selling my home. We bought the house two years before my first kid was born. We loved (and still love!) our next door neighbors, who grew up with my children. It was a huge house with a nice-sized front yard and a huge backyard. Five bedrooms, three bathrooms, a nice front porch for sitting in the summer and a garden my mother tended.

But it also had a lot of problems. The basement and attic were unfinished. We needed gutters. When it rained, the basement and front yard would flood. The fence around the property needed repairs. The kitchen and bathrooms were outdated. The electrical, plumbing and heating needed to be replaced. We didn’t even have a hood above the stove. The roof needed replacing. And for a house as large as ours, the cost would have been almost $20,000.

If I had been able to save the house, I’d have a great mortgage interest rate and a low monthly payment. But at the cost of repairs and property taxes and maintenance. I don’t have to worry about that anymore, and that’s a huge relief.

We’ve lived in a rental since 2020 and I feel so much freedom from the stress and headache of repairs and maintenance. When the dryer needed to be replaced, I called the landlord. When the furnace broke down, they sent someone late on a Sunday night to repair it. I’ve saved and invested more in the past three years than I ever have in my life. I’m not saving to survive. I’m saving to thrive.

Oh, and my credit score? With two bankruptcy filings on my credit score, yes, my score went down. In January 2020, it was hovering around 415. (I finally checked!) As of this writing, it’s hovering around 750.

Get Professional Help

There may come a time when you need someone to guide you through the process of bankruptcy. Or maybe you need a professional to help you decide if you should file or try another route to resolve your debt.

Financial therapists and money coaches (yes, a plug for myself!) can help. If you want to know how a money coach and financial therapist can help you, check out What Kind of Financial Professional Do I Need?

Check out the resources below to see what fits your needs best. I wish I’d been more diligent or open to asking for professional help wayyyy sooner than I did.

• Check out the United States Bankruptcy Court website for excellent information and resources, including forms, fees and descriptions of the various bankruptcy petitions.
• Contact your local bar association for attorney referrals. The King County (Washington) Bar Association runs a lawyer referral service and charges a nominal fee for a 30-minute consultation. From that website you can reach the American Bar Association’s referral site for attorneys in other states.
• The Financial Therapy Association has a directory of therapists who list financial therapy as part of their practices.
• For foreclosure options, do a search for your state’s housing commission. Try using terms like foreclosure assistance [state]. Make sure the website that claims to help you ends in .gov. And always make sure it’s a legitimate website before paying any fees. HUD-approved counselors can be found at the U.S. Department of Housing & Urban Development Avoiding Foreclosure website.

Have you filed for bankruptcy? How did you feel once the case was approved? Feel free to drop a comment below and share your experience!