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

[juggalo9er]

its not that those of us who filed chapter 7 are bombarded with credit card offers, its that we chose to rebuild slowly over time. It has taken me two years to get to the scores in my signature starting from a 300 cap 1 card to another cap one to barclay. i believe it depends more on who was burned in your bankruptcy than how much you discharged as i had 90,000$. there is nothing glamorous about anyone filing bankruptcy as it was probaly the most depressing thing i have ever had to do.

[FHF]

The creditors could care less about how hard you work to pay them back.   They're more concerned with total debt load.  Once you file bankruptcy in chapter 7 you have a perfect debt load, none.  You can't file again for 7 years.  They will  lend you money now and if you don't pay they will attach your assets.  You've lost the protection of bankruptcy.  When the collectors call you can't tell them to "call my lawyer".  The judgements, lawyer's fees and court cost will all start adding up.

Now a person like you who struggles to pay them back is a sucker.   They have their money, you can still file for bankruptcy, forget about getting cash.

Getting rid of debt through bankruptcy is the new American way!  Baseball, hot dogs, apple pie and a post bankruptcy Chevrolet. Speaking of Chevrolet look at it's home town of Detroit.  Lets get a fresh start by screwing all the creditors and retirees .  Great lesson for our children. 

[danny4l]

I don't think I'm a sucker.  I think credit counseling in my situation was the right thing to do.  I think in the short term, a bankruptcy may look good, but I am thinking that somewhwere in the long term, a bankruptcy will be problematic.

Wish other's would add to the discussion as I am still not very clear on the pros and cons between bankrtuptcy and credit counseling.

[ezdriver]

At this point, I'm thinking that you really do not want to understand that bankruptcy works for some and not for others. You are looking for a single list which does not exist because people's credit profiles, like DNA, are uniqe to individuals.

Here ya go ... YOU DID THE RIGHT THING ... FOR YOU!

I'm almost debt free [except for one auto loan [by choice]] and scores in the 670s right now ... only 6 months after my discharge. How long will you be making payments on credit balances that prevents you from getting credit any easier than me or using that money on something else like I'm doing? I'm saving my money to buy a house rather than to pay unsecured creditors and the IRS. Go ahead ... consider me "rewarded" by the system.

You are seeking the answer to a "meaning of life" kind of question. There ain't no one answer. Get it?

[ezdriver]

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@FHF wrote:

The creditors could care less about how hard you work to pay them back.   They're more concerned with total debt load.  Once you file bankruptcy in chapter 7 you have a perfect debt load, none.  You can't file again for 7 years.  They will  lend you money now and if you don't pay they will attach your assets.  You've lost the protection of bankruptcy.  When the collectors call you can't tell them to "call my lawyer".  The judgements, lawyer's fees and court cost will all start adding up.

Now a person like you who struggles to pay them back is a sucker.   They have their money, you can still file for bankruptcy, forget about getting cash.

Getting rid of debt through bankruptcy is the new American way!  Baseball, hot dogs, apple pie and a post bankruptcy Chevrolet. Speaking of Chevrolet look at it's home town of Detroit.  Lets get a fresh start by screwing all the creditors and retirees .  Great lesson for our children. 

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I agree with most of what you posted except for the last piece about Detroit. If you really believe that Detroit got where it is because someone screwed all the city's creditors and unions, you are truly lacking in the education area. GM, Ford and Crysler sold millions of gas-guzzling, high-profit, products for decades and made fun of the Japanese and European products as unsafe and unreliable and got their lunch eaten. Who is laughing now? I will buy German-engineered cars for the rest of my life ... no more Ford or Chevy for me.

[starry1]

Small correction:  If you file chapter 7, you cannot file for another Chapter 7 for 8 years (not 7); you can file for a Chapter 13 in 4 years from a previous Chapter 7. If you had a Chapter 13, you may file another Chapter 13 two years later; if you had a previous Chapter 13 and need to file a Chapter 7, then you must wait 6 years.

[StartingOver10]

I don't think you are a sucker either for not filing over $25k.

That is a very small amount of debt. I realize that it might seem like a large amount, depending upon your income, but in your post you are able to repay the debt.

I filed BK in 2008 and the debt was substantially larger (just under $1M) and as a result of an unexpected major illness. Had I filed over something minor earlier in life, like the $25k, it would have created issues for me.

I do think there are better ways to repay rather than going through the credit counseling you described, but that was your choice at the time with the information you had at hand. Personally I would have used Dave Ramsay and the snowball method to recover from that amount. There are lenders that will consider the credit counseling just as severe as a BK so I am not sure you are going to be able to avoid some of the issues associated with a BK. You will be able to avoid the notation of BK on your report for 7 to 10 years (7 yrs in the case of a Ch 13 and 10 yrs in the case of a Ch 7).

Ultimately one of the other posters nailed it: it is an individual decision based on the information you have at the time you make the decision to either file or repay.

[danny4l]

Let me put it this way.  Each month since February 2012 I have paid $601 to the credit counseling and I will continue to do this till June 2015.  I chose a good company and they haven't let me down.  They pay on time each month and the follow up with me every three months to see how everything is going.

When I was on disability and then unemployment for 2.5 years.  My whole check went to the creditors.  I would have rather kept that money and the $601 that I pay now instead of giving it to the creditors. 

A part of me said that the debt is my responsibility and I just said paying it is the right thing to do.  If I take the short cut here, where else in life will I start to take short cuts?  I said I messed up and I'll pay for it.  But at the same time, I want to be "rewarded" for doing the right thing and I think I am confused and frustrated that I don't see the "rewards" of my hard work.

So because I am not seeing any rewards since I don't think I'll be able to get an unsecured card till I'm out of the DMP, in a way, I wonder what it would have been like if I just declared bankruptcy right way and "saved" all that money.

Beyond that I'm still trying to figure out how bad the bankruptcy notation is on your credit file.  I mean it's there for 10 years for some reason right?

[tony46231]

In my opinion, you are doing the right thing.  You're paying the debt that you created.  Personally I don't think anyone should be able to file bankruptcy and then have credit offered to them.  If I'm not mistaken, you can get a FHA mortgage one or two years after discharging.  If the rules were changed so that it actually took away the ability to get an auto loan, mortgage, credit cards for 7-10 years, people would start being responsible and think twice about creating huge financial messes that they cannot clean up. I don't think you need to be rewarded for doing the right thing, but I think those who file bankruptcy over circumstances that could have been controlled need to be punished a lot more than they are.

On the other hand, I do have some compassion for those who file bankruptcy over medical bills.     

[bbrentlinger]

Here is my personal experience.  We filed chapter 13 due to overwhelming medical bills and job loss.  We paid every penny back.  at the 4 year mark we were finally approved for an fha mortgage and that was a huge struggle because the trustee was a pain.  I will tell you it has not been easy road.  We paid $613 a month for 5 years.  Even when I got laid off again.  they never changed our payments.  Our scores arent very good, even though we have worked hard to clean up our reports.  But we have a couple small credit cards that we always pay on time and try to pay off every month.  So in my opinion, no WE are not being rewarded.  We will still have a terrible interest rate for an auto loan that unfortunately we need,  after we finally discarge in a few weeks.  We arent getting any of pre-approvals for credit.  We both got the VS card through the shopping cart trick, but it is purely for utilization purposes as we will never use the cards. 

As far as credit counseling goes, my mother in law does mortgage closings for Wells Fargo, she told us that credit counseling is just as bad as bankruptcy and in some cases worse.  There isnt anything that the credit counselors can do that you cant.  Check out Dave Ramsey.  His Total Money Makeover helped us a ton!

But I do agree that some people who file chapter 7 get "rewarded" by getting credit right after discharge.  I personally have friends who got a 0% auto loan right after discharge and theirs was primarily credit card debt to the tune of $120k.  So it does make me mad that they could just file and go right back on living as if nothing had happened!  When some of us try to make it right and still continually struggle.

hope this helps!