Bankruptcy

Is Bankruptcy the Right Choice for Me? What Options Should I Consider instead of Bankruptcy?

By Joseph McDaniel, Esq.

First, I have a little something I call the Joseph C. McDaniel Rule of Bankruptcy Inevitability. It goes kinda like this: if your unsecured debt (like credit cards and medical bills and breach of contract lawsuits) is equal to your net annual income, you're eventually gonna file, when you get tired and depressed enough, because the math doesn't work, and you can't pay off that debt with minimum payments.

Always?

Of course not. You might borrow enough dough from Uncle Gotrocks to pay off all your credit card and medical debt and even catch up on the child support.

But that doesn't happen much. Does happen, though.

How about negotiating with your creditors?

Well, sometimes it does work. On the other hand, it's pretty frustrating for most people when they're successful in negotiating 16 out of 20 credit cards and hospitals and angry people, and the rest won't budge. Makes 'em crazy.

But negotiating their own credit card debt is something I like to see people try, because it makes them appreciate what I do for them so much more. I call it The Free Bite at the Apple.

Bear in mind that when negotiating credit card or any other debt, you need to understand the possible tax consequences of debt forgiveness, and the exceptions to that rule, and what you do if it goes sideways on you.

How about using a company to try to negotiate your debt?

Hey, whatever floats your boat. But I get a lot of refugees from those particular boats.

What about a Chapter 13? Well, if you don't pass the means test, and you can't find a way to pass the means test (I have heard people try all sorts of things, often with success, but that's a different post). If you just plain aren't ever going to pass the means test, no matter what you do, and the creditors don't want to play nice, or you just don't have the mental stamina to deal with negotiating with them, a Chapter 13 could be of some use.

Not my first choice, though. You're stuck with payments to a Chapter 13 Trustee for three to five long, long years.

And that's pretty brutal.

The failure rate for Chapter 13 cases is nowhere near as high as it is for Chapter 11 cases, but it's still pretty darn high.

But do you qualify for bankruptcy relief? Well, unless you just filed a bankruptcy yesterday, and depending on the Circuit in which you live, and how long you've lived there, yeah, you probably qualify for some sort of bankruptcy relief.

And if not, well, it's back to the old tool chest to see what other approaches might work; but none are as cheap, fast, and certain as a Chapter 7 Bankruptcy.

On the other hand, after the 2005 Amendments, even the Administrative Office agrees that Chapter 7 Bankruptcy cases are more work, more trouble, more likely to fail, and more expensive.

Hey, the Supreme Court of the United States only says no to Congress when the law is unconstitutional, not when it's merely dumb.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on March 17, 2010 (boomark / email).