If you’re thinking of filing for personal bankruptcy, it’s important to 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. If your house is in foreclosure, it will stop the house sale. The court must approve any plan in Chapter 13. Both filings will end up on your credit reports and public records.
As a trained paralegal, I cannot stress how important it is for you to interview and research attorneys. Look for one that has experience with personal bankruptcies. A financial therapist or money coach (yes, that’s a plug for people who do what I do!) who has experience working with people who have financial issues can help as well. A good therapist or coach can help you identify how you got into debt and how to stay out of debt. Make sure that whatever decision you make is one you make with the best advice and knowledge from professionals. As an individual, you have two options when it comes to filing for personal bankruptcy.
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. Chapter 7 filing will stay on your public record and credit reports for seven years. Filing doesn’t necessarily mean you will be approved to go through with the bankruptcy. 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 and care! 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.
Should You File Without An Attorney?
Bankruptcies can be tricky. Whether you’re filing for Chapter 7 or Chapter 13, filing for personal bankruptcy is difficult, and it’s important to know your options. That’s why I strongly recommend seeking help from a personal bankruptcy attorney. However, I understand that for whatever reason someone may want to file pro se (by themselves, without an attorney). First, go to the U.S. Bankruptcy Court website because this is the definitive source. 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 is not as full of the legalese as what you will find on the bankruptcy court websites. 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 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. 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 shame knowing that I failed my family.
By now I was numb to my finances, to the idea of losing my home, and I was desperate for some sort of resolution, including 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 again in 2019, I had the assurances of my attorney that this time might just well be different. I diligently made payments again, began to save a bit of 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. I didn’t care about my credit and honestly hadn’t bothered to check it for three years. There was no point. The numbness and sadness were stronger than my desire to build 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.
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 neutral financial act and has no moral implications. Unfortunately, society doesn’t see it that way.
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?
We’ve just lived through a worldwide pandemic. Millions died. Millions around the world lost jobs and livelihoods. We started competing with our kids for shitty jobs and gig work just to bring in money. These things are out of our control.
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 kids. 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.
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.
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. As of this writing, it’s hovering around 750.
Get Professional Help
- 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 Association for Financial Counseling & Planning Education® certifies financial counselors. Check the directory to find an Accredited Financial Counselor®. I’m a member of the AFCPE® and working toward my accreditation. We can help you work through your current challenges and plan for the future.
- The Financial Therapy Association has a directory of therapists who list financial therapy as part of their practices.