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the District of Columbia—One At A Time

Bankruptcy

The decision to file for protection from creditors under federal bankruptcy laws can be a traumatic one, preceded by months or years of economic (and accompanying emotional) distress. The factors leading up to this decision are as varied as the people who find themselves forced to make it. Loss of a job (or two), catastrophic illness and the accompanying high medical bills, or spending in anticipation of a promotion or a job that didn't materialize are among the reasons people find themselves unable to meet their monthly financial commitments.

Under what circumstances would you consider filing for bankruptcy protection? If you have cut your spending to a minimum, yet your debt load still increases; if you have a negative cash flow month after month even if you pay the minimum (or nothing) on your credit card bills; if your liabilities greatly exceed your assets and there is no prospect for improvement, then you might be a candidate for bankruptcy protection.

A few things you should know about the bankruptcy process:

• It gives you a fresh start without starting from scratch. You come out of the proceedings debt-free. Most people who file under Chapter 7 don't have to sell (liquidate) any of their possessions. You might surrender to a creditor something that you are still paying for but cannot afford to keep, such as a car or a house with little or no or negative equity. The corresponding benefit is that you don't have to make any more payments.
  
  
• The moment your petition is filed with the Bankruptcy Court, creditors are stopped in their tracks. This is the effect of the "automatic stay of proceedings." Creditors can't call you, they can't write you, they can't sue you. If they've already started legal proceedings, those proceedings stop. If they've sued you and won, they cannot collect or levy or execute on a judgment. Everything remains frozen in place until the court acts on your petition, usually about 90 days later, discharging your debts.
  
  
• Yes, your credit rating suffers from the granting of a discharge in bankruptcy. On the other hand, the fact that you considered filing for protection meant that your credit rating was in serious trouble anyway.
  
  
• There is no magic number of years after which your credit rating suddenly emerges into excellence. It is a long, slow recovery process that develops month after month, through careful attention to prompt payment of your bills. The longer you can sustain this, the further into the background your discharge recedes, and you will eventually find that you will qualify for loans at or near the market rate.

If you require additional assistance, or have other questions, please contact me and I will be glad to assist you.