"Bankruptcy won't solve all your problems and the people who go that route often have no other choice (which is why so many people report having high credit scores after declaring bankruptcy)."

Good article but this didn't make sense to me. Why would they have high credit scores? Wouldn't they be low?

At least they will have no problem getting a credit card.
In Connecticut, you can't declare bankruptcy again for 7 years, so the credit card companies know they can at least garnish your wages for the next 7 years if you don't pay.

Wouldn't someone be better off just not paying there creditcard debt, just default on it. Thats on your record for only 7 years right?

Well my credit score is over 700 but my wife & I now make 50% of what we did last year and so we're buried under our 80K debt we acquired when it was trivial to pay the minimums plus some.

I make over 50K a year and have less than $150 a week to live off of right now.

@SonicMan:
A great choice if you love dodging debt collectors. Don't plan on answering your phone ever again.

We have some family friends who declare bankruptcy every 7-10 years or so. I know of 3 for sure. This has never impacted their ability to get new credit cards, car loans or mortgages. The interest rates might be higher...but they don't pay the loans back anyway. They've never had their wages garnished or really been held accountable in any serious way. This is their sad lifestyle. A constantly repeating cycle.

Whenever I read these "bankruptcy is bad" type of articles, I always laugh and think of this family. It certainly hasn't been bad for them...just their sucker creditors.

I have a moral problem with some bankrupcies. Some are warranted, but I know someone that went 1.2 million in debt, making and spending a couple million along the way, then declared Chapter 13 and paid back about $150,000. I know this because he bragged about it. Moved things out of his name and into his parents and kids name to hide some assets. It was disgusting to see.

i know people who have filed bankruptcy and the next week be driving new cadillacs.

One thing I've always wondered is (and I'm hoping someone can explain it to me) why lawyers on TV out here are saying "most people who are doing credit counseling SHOULD have been filing bankruptcy! we think the new law is better than ever!" Are these attorneys just after fees from clients to file bankruptcy, or are they getting some sort of cut? I just wonder because I mean, how much can you really charge someone who is bankrupt already...?

Pardon my naivety!

@heybtbm: Keep in mind how easy it has been to get loans for the last 25 years, and what such lax lending standards have wrought on the economy and the industry.

Perhaps the creditors that were willing to continue to write loans for your family friends despite their bankruptcies won't be around the next time the latter is looking for a loan.

What this article should do is offer alternatives, like credit counseling, negotiating with creditors, snowballing debt payments, ...
If you are going to talk about how bad one choice is, at least offer up the alternatives.
I hate admitting it, but I went through bankruptcy once myself (medical bills were part of it, but hardly the major problem). Never again.
It does suck on the other side, you will get turned down for any good credit deals and I was unable to get a mortgage for many years.
OTOH - I think I would be better off today if I *had* been turned down for my current mortgage and not offered any credit cards. :(

@changed my name: the fair debt collection practices act will put a stop to that..

"Do not call me again. Only contact me by mail."

For the last twenty years, the primary reason for consumer bankruptcy is medical debt.

Which makes sense- consider you're a low to middle-class earner who can't afford health insurance. Your son/daughter/father/mother/husband goes to the hospital after being hit by an uninsured motorist on the street. You'll sign anything to get them treated- and then get stuck with hundreds of thousands of dollars in debt. What the hell else do you do?

For one thing, medical and prescription expenses are just insanely high. Hundreds of thousands of dollars should be $10-$15k max. That will sting some but won't kill many.

A couple of years ago, my wife was having unfamiliar pains. Turned out to be a kidney stone, but we didn't know and went to the emergency room. A couple of x-rays, A morphine drip for the pain and the sight of a doctor that told her to drink lemonade once a day and they billed our insurance $7000.

Half of the bankruptcies are for medical bills, a large percentage of those had insurance. We need to address the problem rather than the symptoms.

Either we need to establish national health insurance or we need to limit what medical creditors can do to collect on medical debts.

Just think how much better off businesses would be if half of the people didn't file for bankruptcy and could pay their other bills.

If I recall,the reason credit scores rise after filing BK for some is because before filing all their debts went delinquent anyways.Keep in mind living 10 years without credit isn't impossible-most who file would be credit-less for at least 7 years anyways,and if their finances have fallen behind long enough before filing they'll already be living without credit .

Which,to be honest,is something we should all try to achieve.I can think of a few examples of why 10 years without credit might be a blessing in disquise.More $$,less loans never sent someone to the poorhouse.

"If you were a landlord and had to choose between two renters, one who had declared bankruptcy or one who hadn't, which would you choose?"

The one with bigger boobs.

@EarlNowak: Actually pay attention to your car insurance maybe? Instead of Getting the lowest possible rate.

My wife and I sat down and increased our coverage to 1 million, we increased our uninsured motorist to 500k

Cause you never know.

I mean all these companies boast cheap insurance and people rush out to get them.

Then if something like getting hit by an uninsured motorist happens, or you hit somebody the hospital bills will be devastating.

Even if everybody had "free" medical insurance i highly doubt it will cover if you cause injury to somebody.

@spoco: There are two kinds of people who file bankruptcy -- people who are being SCREWED by life, often by an unexpected illness followed by massive medical bills while one earner in the family can't work; and people who are absolute assholes gaming the system. The assholes are by far the smaller proportion, but they stick in your mind and make you want to punch them in the face, koala-style.

My husband does some hospital collections, often involving people in bankruptcy. He'll see 9 families struggling with horrible situations and one asshole driving a Porsche in his mom's name. It's the asshole that he's still muttering about three days later.

@changed my name:

(With all due respect)

...Maybe in 1978.But technology is on your side in the here and now. You can buy a throwaway phone for less than a ten spot and make it a merry chase for the debt collectors.Not saying that you should,but you can.

A better solution is found below by Earl- Fair Debt Collection Practices Act. They have their weapons,we have ours.

@adamczar: Your scores go up because your debt-to-income ratio improves. You have less debt and presumably the same or similar income. Your score won't skyrocket back to the 700's or even the 600's, but it will be enough to make you take notice.

@heybtbm: In the past bankruptcy really wasn't that horrible. But in today's climate banks and other lending institutions won't be so willing to work with someone who's declared bankruptcy.

@Skankingmike: Of course it's cheap insurance...if you only have the state minimums for coverage, which isn't that much compared to medical bills.

@JohnDeere:

"i know people who have filed bankruptcy and the next week be driving new cadillacs."

I do too. I am a bail bondsman. The people you mention are car thieves.

It's this kind of thinking that makes it look "easy" and "painless". Very dangerous. If you are tempted to file the old "Blue Collar Two Step", because you want a new Caddy,you need better advice than you will get on this board (including my advice)...

@SonicMan: If you fail to pay on the credit card, eventually it will go to 3rd-party collection and they will have the right to sue you for the monies owed. Judgment will take place if you opt to bury your head in the sand and hope for it to all go away.

Then your wages will be garnished, or worse.

For some, their debt load is so high they honestly have no other choice because their creditors won't bargain with them, they have too much debt and they haven't found a way to bring in enough money to make their way to financial freedom.

For some, bankruptcy does make sense. For some, not all.

@EarlNowak: @EarlNowak: And they will respond to you, by mail. And later with a knock on the door by the local sheriff to serve you with a summons to appear in court because you are being sued for the debt.

@adamczar: I assume that he meant "higher", since a bankruptcy probably has less of a negative impact (numerically) than a whole list of delinquent/collections items...but I am not sure.

Ok...I'm in a situation where me and my ex bought a house together (we were engaged but never married). We broke up and he stayed in the house. He's not making payments on time and my credit is suffering...since he's not making timely payments he can't refinance to get my name off this house. I don't want to file bankruptcy, but I can't let him continue to ruin my credit. So what is a viable option?

A few years ago when credit card companies were still raking in billions of profit, it wasn't too difficult to get them to forgive a portion of the debt. You had to prove hardship and you'd pay tax on the forgiven debt but getting $8K lowered to $1K was worth the aggravation. Does anyone know if CCs have stopped this for the most part? Or are they cash strapped too and feel that any money is better than no money?

@kev313: You're right, I meant highER rather than high.

@Silversmok3: I know that we've been without credit, aside from a car note, for some time. Another ten years will not be awful, but will be trying at times. I'm in a good place now, and I need to work hard to keep things in order and that is something that I'm committed to do for my family's sake.

Yes, a BK is a 'nuclear bomb' on your credit report. Done properly, it can but a stop someone from bleeding to death. If you didn't figure out before filing why you got into so much debt, you are going to revisit the situation again in a few years if not a few months. While its a portion of the filing that many do not take seriously, debt education is important.

@Eyebrows McGee: That quote from the article is ridiculous. In most cases the people coming out of BK should know to build up to have more cash on hand. If they are smart, they will have the first month's deposit plus an additional month or two of rent they can put down right away. Money talks.

@Oface: kick his ass.

Seriously, there's not much you can do now. Contact the lender and make sure that they know the situation. However if he's not making the payments, you are just as responsible for it as he is. Not trying to scold but this is why you don't co-sign or get joint things until you are married.

It's so sad to hear about so many families having to declare bankruptcy and lose everything they've worked for due to a stroke of luck (illness/disease/accident). We may pay more in taxes in Canada (I pay about 22% total federal and provincial income tax on my salary of $70k), but at least I never have to worry about money when I'm in the hospital. Being sick is stress enough...

@quail: They'll still work with people in hardship, but they aren't happy about it. They'd rather get $1000 than nothing. They know that someone that hasn't paid their bill in 3-6 months is less likely to try to get current because it does nothing to their FICO score. That needs to be changed.

For instance - someone who is 3 months late on a credit card takes the same ding on their credit score as someone who just let one charge off.

I am noticing a lot of "Credit Repair" signs going up where I live. Sign of the times.

@Eyebrows McGee:

but what if that's a fat guy?

My mother filed for bankruptcy after a divorce. It taught me to 1) Never get married and 2) Never file bankruptcy.

Kidding (sort of) about the first one, but bankruptcy was miserable for her, and I'd even get calls claiming I owed people money when I didn't and they were just trying to get it from someone in the family. Same thing with my brother. Her wages are currently being garnished, too. It sucks all around, but she didn't have many other options at the time.

@spoco: Hindsight is 20/20. We had been together for almost 4 years. Main reason I signed on the loan is he was in Iraq and if something happened to him, the house would go to the estate and I'd be out on my ass...which is really funny now because I am. I'd gladly take over payments cause I know I could handle them, but he won't give up the house. *sigh* UGH. I hate him.

I declared bankruptcy in 2004 and it was discharged in March 2008. I had lost my job in So Cal and we were living on my husband's salary and racked up the cards to buy groceries and gas to drive to work. We even moved to the East coast a few months later for a better job for me and to live somewhere much more affordable.

We continued to make our minimum payments and never used the cards again, however that didn't stop the CC companies from continuing to raise my minimum payments because I wasn't paying them off aggressively enough. When I would call to explain my situation I got no sympathy or offers of help to get into some kind of reasonable payment plan. It got to the point where my auto insurance rates were higher because of our debt to income ratio.

So we did the bk before the laws changed, got a Chapter 7, wrote off about 30K in cc debt, and were able to buy a house the following year with a 100% financing fixed rate loan at 6.5%. I was also able to get into a car lease 6 months after the discharge. I think the bankruptcy was the best thing I ever did.

Not only do folks like those "family friends" screw over "sucker creditors, they make credit just that more expensive for anybody else looking for credit too. But they don't care. They're selfish and careless. More of their ilk can be found at creditboards.com. :(

@Oface: You may be able to fight him on it. If you can make the payments, you have as much right to the house as he does.

@AmbiUbi: So the best thing you ever did was borrow $30,000 that you didn't pay back?

Ladies and gentlemen, I present to you or nation's core problem.

@spoco: So I guess getting a lawyer wouldn't be out of the question? Fun.

@JohnDeere: I was just about to post something like this. I saw it in action, I was floored.

@AmbiUbi: "I was able to get into a car lease" Which is, of course, a great financial move...

@spoco: Zing!

@Blueprint for Financial Prosperity, kev313, Sam Wille:

Ah, got it. That makes sense, just had to think a little harder. Of course the people declaring bankrupcy would have lower scores to begin with.

@Blueskylaw: Bingo. My brother (an idiot) used CC cash advances to try to play a commodities day trader. When his "system" sucked, margin called, and voila, he racked up $60k in debt in a matter of 2 months.

Of course, he declared bankruptcy (only 1 CC showed up at his hearing, so he's still paying them back). Within 30 days of judgment, he had at least 20 offers for more credit cards. Some, from the same companies that he just defaulted from.

The "you won't get credit for 7 years" thing is a total myth. There are simply too many greedy bank/CC outfits out there scrounging around.

Or at least, there used to be. Economic Darwinism may be painful, but it actually may have a slim silver lining.

@EarlNowak:

If they cant harass you by phone, then they will have no choice but to take you to court.