|
You might have spotted some signs that you're headed
toward a deep financial hole. You've been skipping payments on your
mortgage or car loan or maybe you've been maxing out your credit
cards. Repeated calls from creditors demanding their money might
tell you something, too.
 |
| Bankruptcy timeline |
|
|
|
|
|
|
A low credit score would seem to be a strong hint,
but it's not always a good gauge. Barry Paperno, manager of consumer
operations at Fair Isaac Corp., a leading developer of credit scores,
says consumers who file bankruptcy can have very different credit
histories with a wide range of FICO risk scores at the time they
file. And they can be affected in very different ways.
"The degree of the effect on each consumer will
vary depending on other factors evaluated by the FICO score, such
as the length of credit history, amount of credit obligations paid
as agreed, other delinquency/derogatory items, amount of credit
used, types of credit used and search for new credit," he says.
Attorneys say that if you do have to file bankruptcy,
preparation and timing are extremely important, especially with
the new provisions in the law such as the Chapter 7 bankruptcy "means
test," which determines a consumer's disposable income.
"You need to average the income over the prior
six months," says Marc Stern, co-chair of the Bankruptcy Committee
of General Practice solo division of the American Bar Association.
"If the debtor lost a high-paying job, the longer between the
job loss and filing the better. The wait probably presents a more
factually correct analysis of the debtor's situation.
"There are other factors: If a medical problem
has not been stabilized, there is no reason to file, or, if anything,
file a 13. It can be dismissed or converted at a later time. If
the debtor is not employed, why file? There is usually nothing for
a creditor to pursue. Wait and file shortly after they get a job."
But don't wait too long to seek help, especially if
you are faced with a legal action such as a mortgage foreclosure,
car repossession, wage attachment or an inevitable loss of property.
Also, be extremely mindful of your spending. Monitor
your use of credit cards. The American Bankruptcy Institute advises
that once you've decided to file bankruptcy, stop using the cards.
Experts warn that anything you purchase knowing you
won't pay is considered fraud under the bankruptcy law and that
debt won't be discharged. Buying luxury items such as a high-definition
television or services like a day at the spa and/or taking out cash
advances within two or three months before you file won't be discharged,
even if, at that time, you didn't think you would file.
So, the decision is made. You believe filing a Chapter
7 liquidation or a Chapter 13 repayment plan bankruptcy is the best
move to eliminate your mounting debts and end constant calls from
creditors. What's
next?
Gather financial documents
The new law has added a series of provisions to tighten loopholes
by requiring more paperwork. A case can be dismissed for failure
to provide all required documents and information. So an organized
pile of essential documents not only smoothes out a very detailed
process but also saves time and most importantly, money. Prepare
a list of assets, debts, income and lawsuits, and put together all
financial documents such as pay stubs, receipts and tax returns
relevant to the list.
|
