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Please help me understand this issue...bankruptcy vs. credit counseling.

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danny4l
Frequent Contributor

Please help me understand this issue...bankruptcy vs. credit counseling.

I really need a solid answer on this issue as I can't seem to find a definitive answer.

 

I keep hearing about people who declare a Chapter 7 and then I hear that they either bought a car or got a credit card almost immediately.  Isn't declaring bankruptcy supposed to be a bad thing? ...like an absolute last resort?

 

I, on the other hand, had about $25000 in unsecured debt and $6000 in medical bills and I chose to negotiate the medical bills and enroll in a credit counseling program to pay off my debt.  Nobody is offering me a credit card, and my credit counseling program will end in June, 2015. 

 

Some people tell me I did the right thing but what I don't get is how people who declare a bankruptcy are being "rewarded" while I'm trying to do the right thing and I feel like I am being "punished."

 

Am is missing something with bankruptcy vs. credit counseling?

 

I would love to know your thoughts.

Message 1 of 46
45 REPLIES 45
bbrentlinger
Regular Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

I feel the same way. Although we just completed our chapter 13 and repaid our debt we are still struggling to get credit again. I have friends who filed 7 and foreclosed on a house, right after discharge got a 0% auto loan and credit cards again. How is that possible especially when all their debt (120k) was in credit cards? Our debt, was solely medical debt. Seems the system is flawed.

Starting Score: EQ593 EX 633 TU 649
Current Score: EQ 593 EX 633 TU 649
Goal Score: 700


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Message 2 of 46
danny4l
Frequent Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

I am really hoping somebody can give us some insight into this.  What I thought was that, OK, declare a bankruptcy so you don't have to worry about the bills but as a punishment, you won't get credit for the next 7-10 years.

 

Seems to me what is happening is, OK, declare bankruptcy and we'll just forgive your debts and you can start over right away.

 

They say a bankruptcy stays on file so I'd like to know what exactly that means.  How do you give someone who has a bankruptcy on file a mortgage and you punish a guy like me who worked his butt off to pay his bills?

Message 3 of 46
ezdriver
Senior Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

There is nothing hard to understand about the bankruptcy process and intent ... whether Ch7 or Ch13. They are both voluntary actions by the debtor. You chose to make payment arrangements while I chose to take the hit of a Ch7 and ... GET A FRESH START! How creditors choose to view a credit profile of someone making payments vs someone who has been relieved of the legal reponsibility to pay the debt is their choice ... but how is that REWARDING SOME WHO SUCCSSFULLY COMPLETED A CH 7 BANKRUPTCY?

 

Keep this in mind. One can file bankruptcy once every 7 years so some creditors consider that individual a better risk than someone burdened by monthly payments that can stop due to many reasons [eg:job loss, illness, etc.]. This explains why you can walk into a car dealership and get better terms on a new-car purchase loan than I have on my car that I keps through the bankruptcy. I bought it just before my Ch 7 filing when I had bad credit so the rate was high to begin with. Had I known then what I know now, I would have held off buying the car until after my Ch 7 discharge was received.

 

The intent of personal bankruptcy laws is to allow folks to GET A FRESH START ... if they qualify and choose to take advantage of the laws' protection. Don't blame folks like me for choosing to do so while others choose to make payment arrangements.

 

Also, there is no moral issue for me. It is simply a financial transaction. When unsecured creditors give you money with no collateral, they are fully aware of the risks involved and they are compensated for that rish by higher interest rates and fees.

 

Message 4 of 46
danny4l
Frequent Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

ezdriver, if it were as easy as you suggest...everybody would declare bankruptcy.

 

Since we all are not declaring bankruptcy, I'm trying to figure out why that is.

 

My biggest issue is that you would have a bankruptcy on your file for 10 years.  My DMP comes off next year.  There has to be pros and cons to that alone.

Message 5 of 46
ezdriver
Senior Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

Actually, it is very eazy .... if you qualify. Qualifying is the key. The rules for qualifying are pretty clear too. I paid an attorney to prepare and file the papers then I attended a couple fo hearings and worked out an agreement with the trustee to pay a few bucks in exchange for him siginging off on the discharge and stop comeing after my assets.

 

The way I see it, if you are going to have late payments on yoru record that will hamper rebuilding efforts, then bankruptcy is the way to go. My discharges was in April of this year and I now have a new house under contstruction and I will close on it a few days after the one-year time lapse in April of next year. I now drive two beautiful Mercedes cars and am saving lots of cash to make a huge downpayment on my new home. No downside for me that i could see. Having a bankruptcy on my credit record for 10 years is not causing me any pain whatsoever. I dispensed with a huge tax liability to the IRS and now they are off my back ... and that feels gooood! As for my other unsecured creditors, I don't waste a moment of my time feeling bad for them. Life goes on.

 

 

Message 6 of 46
danny4l
Frequent Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

ezdriver,

 

Maybe it was a better choice for you if you say you had assets.  I did not have any assets and about $25000 in unsecured debt.  The unsecured debt can be paid off in 3.5 years.

 

My point is if the Bankruptcy note on your file for the 10 years really doesn't prevent you from doing anything, then why have it there in the first place?  I'm sure somewhere within those 10 years, it will become an issue.

 

I want to see what others have to say.

Message 7 of 46
ezdriver
Senior Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

If you can pay off your debt in 3 yrs, you do have assets .... your income. Having disposable income to pay your debt means that you woul not likely qualify for a Ch 7 anyway. The best that you would do is Ch 13 ... which is simply a court-supervised payment arrangement ... sometimes including reduction of debt balances. There is no simple answer as each individual's circumstances have to be evaluated agains the available options. Based on what I have read in this forum, there are folks who would be better off just filing for bankruptcy and get on with rebuilding their credit profile vs chipping away at it for years. Just my opinion.

Message 8 of 46
danny4l
Frequent Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

ezdriver,

 

I can't imagine you would get the same interest rates as someone without a bankruptcy with excellent credit.  Is that reason enough to avoid?

 

Also, I had late payment negatives which started right around the time where I was looking to enter credit counseling so even though a bankruptcy might have discharged the debt, the 180-lates I had would impact my score for the 7 years.

 

It is very confusing still for me.

 

Many people have told me I did the right thing.  I agree that I am doing the right thing but I can't figure out why I am making payments till June, 2015 while people who are declaring bankruptcy are getting the credit cards that I wish I could have now.  Perhaps I am yet to see the effects of my decision?

Message 9 of 46
ezdriver
Senior Contributor

Re: Please help me understand this issue...bankruptcy vs. credit counseling.

Let's stipulate that a borrower with low scores and "thin" credit will have a harder time finding financing at the best rates for just about anything they buy. Please also understand that I do not use credit cards to finance any purchase for more than 30 days ... so credit cards rates do not matter to me. If one is using credit cards to finance purchases for more than 30 days, there is a more serious serious issue to be addressed.

 

I'l defer to others to chime in if they wish. There is not much more that I can add.

 

 

Message 10 of 46
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