Well, it's done.

[Paft]

My bankruptcy is finally reaching the end. The meeting of creditors went by easily, my lawyer made sure everything was kosher with the trustee, and now we wait. 60 days, people, 60 days.

*sigh*




Edit: By popular demand, I'm going to explain the entire process in detail, starting with why I went down this path in the first place.



As many of you all know, I had a job as a computer programmer. While it wasn't a lot of pay ($27,500/yr), it was my first "real" job out of high school that I held more than 30 days, and I felt like hot **** earning almost double out of the gate as most of my peers. Unfortunately, that lead me to be a bit cocky - and since the only real education I had about money management came from my dad and consisted of "spend more money than you have and don't worry about things getting repossessed," that's exactly what I did. While I had my job, I bought quite a bit - furnishings for my apartment (more than just the bare bones stuff I had when I moved into it), ate out constantly, had the most expensive internet and phone plans I could, etc. I was living way beyond my means - but I had two credit cards at the time and thought nothing of running bills up on them and just paying what I could (more than minimum, but less than I put on the month prior). This got me to over $5,000 in debt.

Then I was laid off. My $27.5K/yr turned to $0. And I lived like that for four months - paying my rent with cash advances, opening another line of credit once my previous two lines were maxxed out, and then getting a debt consolidation loan to clear the limits on the first two cards. While I was doing this, I had two roommates who lived with me... my friend Nic, and my girlfriend at the time, Jeni. Now Nic had a job and he contributed towards the household finances some - paid a third of the rent, and bills. But Jeni paid nothing and I took on her share - as well as all of the food and all of Jeni's personal expenses, since she was also out of work and I "had money". However, Nic moved back home at the end of my third month being off work, and Jeni and I broke up after the millionth argument we had about her spending all her time on World of Warcraft and not looking for another job. So I was left alone in my apartment with a ton of bills, and dwindling money. So I opened a fourth line of credit to make it to the end of month four, and when my lease ended, I was out of there like a shot and moved back in with my friend Ronda.

So now I'm up to about $12K in debts. One loan, four lines of credit. I recognized that I needed help, but I didn't know what to do... and at this point, I couldn't even pay for gas, let alone all the minimum payments I now had. So I got a gas card to afford to get back and forth to work (I was working for McDonald's at this point) and figured that I'd just pay the debts down one at a time if I could get any extra money. And for a couple months, that did work - I was getting overtime at McD's and could just barely pay all the minimums, rent, and $50 extra on one card per month. And then I did another very, very stupid thing. I quit my job at McD's because the new general manager refused to follow through on a promotion that I was supposed to recieve. Cue another two months of being out of work (and paying everything on the cards still) before I could get a part time job at Papa John's that Annalysa hooked me up with. Of course, during those months, I ran out of ways to make payments and hit that lovely concept known as universal default.

Let me explain something. Universal default sucks. The concept is that once you miss a payment on one line of credit, and it's reported to the credit agencies, every other creditor you have raises your APR to the default rate (usually between 26% and 34% - mine was 34% on most cards). They justify it with you being a gigantic credit risk.

Anyway. While I was working at Papa John's, I found out about these things called "Debt Management Plans". I highly reccomend them to anyone who has the money to pay back their debts, especially if it's just the interest, or the interest + a little principle that you can't quite make. The DMP that I went on was through a local consumer credit counseling agency, and they managed to get all of my accounts (both in and out of collections) to agree to no longer charge interest, and to accept monthly payments that were approximately half of what they were individually. This brought my monthly obligations down from ~$900 to ~$450. And again, I was barely squeaking by at this point because Papa John's was only part time, but I was squeaking by. And then I got fired. After five months there.

This time it only took about three weeks to get a new job (my current one) at Fondi Pizzeria. I made more money and didn't have to travel nearly as far (30 miles one way instead of 70 + bridge toll, and $9.75 vs $9.50) and I thought that I would be alright. Ronda covered my DMP payment for the one month I was jobless, and that still was going on, so I could more easily make the payments. And honestly, I still would be on the DMP if it wasn't for two very important points. First, I went from 40+ hours/week to 27 (Sales cut nearly in half about two months after opening), and Ronda pointed out that I was not going to live with her for 7+ years while my debts were being paid off. And there was no way that I was going to afford to move out while paying $450/mo for the DMP + rent + food + gas + bills. So it's at that point that I decided it was best to just go bankrupt - the time penalty was similar (7 to 10 years for a bankruptcy to become insignifigant on your credit, versus 7 years to pay off all the debt) and with a bankruptcy, I could start saving up to move forward in my life instead of being chained to the debt. So I went to see David Hill, a local(-ish) bankruptcy lawyer and got a free consultation wherein he agreed to take my case and advised me to cancel the DMP, pay him the $1,299 it would take to hire him and pay the filing fee, and go bankrupt... and so I did cancel the DMP and hired him.

Now, going bankrupt isn't easy. It's not just 'pay money, get discharge'. There's a mountain of paperwork that you have to find, gather, and fill out. You start by finding the last six months of pay stubs (used to determine if you pass the "means test", more on that later), the last two years of histories on all of your bank accounts, the last two years of tax returns, the last month's statement for each debt, and all communications that you have with creditors and collectors. Then you track down everyone related to your debts - if an account has been sent to collections, you have to follow the path all the way to the end. An example from mine was 'Bank of America (sold debt to) Collect America (retained lawyer) Joseph Belzer". And you have to get the addresses, phone numbers, and account information from each link in the chain, as well as the amount of the debt, the last date you made a payment on it (used to check the "presumption of abuse", again, more later) and other such information. Once you've compiled the creditor list, you sort it out into secured debts (mortgages/leins), judgements (things you CANNOT go bankrupt on, such as court rulings against you, educational loans, and back taxes), and then unsecured debts (credit cards, loans, etc). Luckily for me, every debt I had was unsecured, so it was all dischargeable. Once you've compiled and sorted that list, now you get to go through every single item you own and value it - now, you don't have to completely itemize, you can group ("Toiletries", "Computer equipment", "Clothing", etc), but you DO have to have accurate (blue book / yard sale) values for each item... or reasonable enough that the trustee that will be assigned to your case can believe the values. And with those assets, either you have to reasearch both your state and federal law and find the exemptions that you keep your property under (exemptions are laws that allow you to keep a certain amount of property before the court can touch it to sell and pay your creditors with), or your lawyer will do it for you. And then it's filing time. I went the lawyer route, so in my case, I handed the completed paperwork back to David to check over and file for me, but you can self-file (though it's WAY more of a hassle). OH, and one last thing: Before you file, you have to complete one of two debtor education courses - this one is about the different kinds of bankruptcy and alternatives to it. When you do, you get a certificate that must be filed with the bankruptcy paperwork, or your case is thrown out and you have to pay the filing fee all over again and try again.

Once you've filed, your life becomes a lot easier. There is an "automatic stay" placed on all of your accounts - what this means is that your creditors are legally forbidden from contacting you about the debts or trying to collect on them (including forclosure!) until the bankruptcy is resolved (either by discharge or dismissal). You get the name of the trustee assigned to your case, a date to appear at the "meeting of creditors" (explained later), and if there's any additional information they need (if you have a presumption of abuse, or if you fail the means test), you find that out too. And from there, assuming you have no more information to provide, you just wait until your date to appear at the meeting. At the meeting, the trustee will have you swear in and answer a few basic questions (is everything you filed truthful to the best of your knowledge, has anything signifigant changed since you filed, etc) and if they need clarification, they'll ask. For example, I have one asset through Prosper.com as a lender on a loan (one of many) where I still have money coming back, and the trustee needed clarification on what exactly it was.

Now. Between the time you file and before you are discharged/dismissed (typically 60 days after the meeting of creditors), you have to take one more debtor education course - this time it's useful information. You learn how to make and follow a budget, how to keep a check register, how credit works (including what an APR is, how to figure out the cost of credit, things like that), and various other information that you might learn from a personal finance class. I actually had a lot of fun with this, and I got my final class certificate before the meeting of creditors - if you don't, you need to file the certificate before you can be discharged, or you will be dismissed for failure to take the class. Also, if you do not have a "no-asset" case (I did), at this point the trustee will come and take your non-exempt property to be auctioned off so that the money can be used to pay your creditors. Once the 60 days have passed (this is time for creditors who did not attend the meeting to object to your bankruptcy if they think they have just cause), if the court finds that you did not abuse the bankruptcy and that any creditor objections are invalid, you and your creditors will recieve a notice of discharge. This states that the debts included in the bankruptcy are no longer collectable, and there are legal penalties for any creditor who continues to try to collect. You have the option at this point to "reaffirm" a debt, which means that you petition the court to allow you to re-open a debt and pay the creditor - but only if the court agrees to it. Otherwise, you're scott free - the bankruptcy is put on your credit reports for the next 7 to 10 years, and you no longer have any debts (assuming you included them all and there were none that were non-dischargeable), and the automatic stay ends on debts that couldn't be discharged, allowing you to work out payment plans with those creditors.

Now for the terms I didn't explain.

Means test: The means test is a three-pronged test that allows the court to easily determine if there's a presumption of abuse. The first prong (the one I fell under) is simple: Do you make less than the median household income for a household of your size, based on the average of the last six months of your monthly income, in your area? If so, you pass. If not, you move on to the second prong, which I believe is: Do you make more than the median income, but do you have less to pay your debts after certain allowances (cost of living allowances), or an obvious reason why you are unable to pay your debts (sudden loss of job, drastic decrease in income, etc)? If so, you pass. If not, you move on to the third prong, which is: Do you have other special circumstances that justify a bankruptcy? The third prong is where the court presumes abuse and you have to prove otherwise.

Presumption of abuse: The presumption of abuse is where the court assumes that you can repay your debts without a bankruptcy and that you are abusing the system to get out of debts that you can pay. If the presumption of abuse arises, your case will be dismissed unless you can prove to the court that you have extremely special circumstances that justify you getting a bankruptcy even though on all appearances you can pay the debts. There is another way for this presumption to arise: If you made your last charge on your debt less than six months prior to filing, the court needs a reason why you were using your lines of credit so recently, or they can presume that you racked up a huge debt and then filed to get away with not paying it - so be very careful when filing!

Meeting of creditors: This is a meeting where the trustee asks you a few questions about your case, and creditors are allowed to show up to provide objections to your bankruptcy, or to question you on specific debts to them that they believe are not dischargeable. You are then allowed to explain your side of the case (with your lawyer's help if needed) and the trustee will arbitrate. No decision will be made about the case at this time, but both sides will be presented to the judge who will ultimately decide if your debts are discharged or your case is dismissed.

One last note: This is all or nothing. You cannot have some debts discharged and some debts reaffirmed - you either get to go bankrupt, or you don't. That's it, yes or no. So when you file bankruptcy, you want to get it right, because if you lose, you can't file again for a long time and your automatic stay is lifted. This can lead to wage garnishments and lawsuits against you!




If anyone has any specific questions, I'll be glad to answer them.

[mountainman]

Damn.

[JawZ]

My bankruptcy is finally reaching the end. The meeting of creditors went by easily, my lawyer made sure everything was kosher with the trustee, and now we wait. 60 days, people, 60 days.

*sigh*

So you weren't allowed to spend your way out of a bankruptcy? How un-American!!!!!!

It would be nice if you could outline the entire process. It would be a very educational read for many....that is, if you don't mind.

[Brk]

If only I could declare on my Everest debts...

[MissTynker2]

That must have been a very difficult ordeal to have found yourself in, and no other way out. According to a friend of mine, who underwent this procedure last year...it is horrendous. She did find the couceling quite informative however, which was a part of the entire package. Laws have tightened quite a bit in the last few years.

I am sorry you found yourself there...but the bright side of it is...you will be able to start fresh, without waking every day and wondering every waking second...how you are going to make it.

Best of luck!

[Gixxer]

it happens man. good luck and hopefully things will get better.

[Roody]

Sorry to hear about your financial problems Paft, but I hope this brings the mental relief you would want.

[Paft]

It would be nice if you could outline the entire process. It would be a very educational read for many....that is, if you don't mind.

I don't see why I can't do that. Do you want to hear the process from day one (including the failed debt management plan attempt), or just the bankruptcy portion?

[mountainman]

I would be interested in hearing all of it. Even if it includes what caused it in the first place.

Thanks for your candor!

[Paft]

I would be interested in hearing all of it. Even if it includes what caused it in the first place.

Thanks for your candor!

Ok. I'll edit my first post and explain it all, since people seem interested in knowing.

[OSULLY]

It will be informative reading.

[Paft]

Edited for explanation.

[Meggie]

werent you the guy that was trying to live all minimalist not too long ago.. that changed huh?

[Paft]

werent you the guy that was trying to live all minimalist not too long ago.. that changed huh?

Oh no. There's quite a bit that I didn't show. And the bottom line is, a majority of my debt (after the debt consolidation loan) was from living and transportation expenses (food, bills, rent, gas, car maintenence, etc). That's the point when living minimalistic as an idea crept into my brain... a way to save money.

[JawZ]

thanks for the update Paft. I learned something from it.

[Paft]

thanks for the update Paft. I learned something from it.

What was that?

[JawZ]

What was that?

Means test, presumption of abuse, creditors meetings, etc.

It was also an affirmation of my earlier beliefs that these companies give credit to those that can break. They should have stopped when they saw you get 2 lines of credit....but they saw you as a business investment. Once you hit the universal default....man, you were making them some money. What rate do loan sharks charge? about 30%.

Now here is the kicker with loan sharks....

To pay one lender the debtor often took out another loan in a process that was called "pyramiding." The loan sharks frequently colluded in encouraging this expanding chain of debt.

Sounds familiar doesn't it?

[Roody]

A few years back I used a Debt Management firm myself and highly recommend it. We were fortunate in that we got it all taken care of within a couple of years, but they can be very helpful.

Thanks for the breakdown Paft.

[Paft]

A few years back I used a Debt Management firm myself and highly recommend it. We were fortunate in that we got it all taken care of within a couple of years, but they can be very helpful.

Thanks for the breakdown Paft.

I have to admit, I love that debt management programs are available. They're extremely useful for most people, and they're a great alternative to bankruptcy if you can actually use them.

You're welcome.

[knightmare]

very informative, sorry about your plight, hopefully life will get better....

[Illini25]

That sucks Paft. But now your on the road to financial recovery and you have learned something out of the whole ordeal. Even if it took what you are going through to learn it.

What you said here:

"spend more money than you have and don't worry about things getting repossessed,"

Made me jaw drop to the floor. Im glad you learned from your troubles and hopefully history won't repeat itself.

[Paft]

What you said here:

Made me jaw drop to the floor. Im glad you learned from your troubles and hopefully history won't repeat itself.

History definately won't repeat itself. I'm using a budget now, a check register, making sure to have a buffer in my bank accounts ($1,000 in my savings, $250 in my checking) in case of emergencies (I hope to raise the savings to a 6 months' reserve when I can afford it), and I'm avoiding using any form of credit - including debit cards with the Visa/MasterCard logo. ATM and checks only.

[tr87526]

As a person in the financial field, I have seen this a 1000 times.

Let me warn you. You will now start getting a TON of credit card offers (well maybe not right now since the economic situation is real bad). Anyways, you will feel like opening an account because you have learned your lesson and you want to re-build your credit history.

Don't do it.

The terms of all financial offers will be horrible. Next thing you know, your right back in this situation.

The next 10 years will be tough but pay cash and enjoy the freedom

[Paft]

As a person in the financial field, I have seen this a 1000 times.

Let me warn you. You will now start getting a TON of credit card offers (well maybe not right now since the economic situation is real bad). Anyways, you will feel like opening an account because you have learned your lesson and you want to re-build your credit history.

Don't do it.

The terms of all financial offers will be horrible. Next thing you know, your right back in this situation.

The next 10 years will be tough but pay cash and enjoy the freedom

I've already been getting a ton of "rebuild your credit" car loan offers, and credit card offers, and all the other BS like what you're talking about... and I have absolutely no desire whatsoever to open any sort of line of credit. I am so very much over this whole credit concept, and would rather just avoid it altogether, pay cash for everything, live within my means, and never ever ever owe someone else money ever again.

It sucks way, way too much.