We can help, the lawyer wrote to me on a Sunday afternoon.
For weeks, I had been obsessively researching bankruptcy, online. It fascinated me.
Although there’s room for abuse (and I suppose my opinion is understandably biased), I love the concept of bankruptcy. It encourages entrepreneurial risk, because as a business owner, you know you’re not facing debtor’s prison, should you fail. You can start virtually clean… although not entirely. At the time of this writing, student loans are not dischargeable, which I think is criminal. Taxes are, but only somewhat.
But you are able to discharge all credit card debt, all debt you owe through private arrangements, medical bills, etc.
Keep in mind, I’m not up to date on the rules and I’m not going to be a stickler for accuracy here.
It’s also amazing what you can keep.
It’s possible, even probable, that you’ll be able to retain your car, home, possessions, and savings
Although if you have a mortgage or car payments, that’s considered a loan from a “secured creditor” and you’ll still have to make an arrangement to pay somehow.
Some people even choose what state they live in, for strategic bankruptcy reasons. For instance, in Florida you’re always allowed to keep your primary residence. Even if it’s a $100,000,000 mansion, you can keep it. In Texas, you can keep all the land you own. Even if it’s 200 acres.
These are extreme examples, but all states are more lenient or strict in certain ways
Just like tax rates, school districts, weather, and crime, it’s a good idea to look into these things when choosing where to live.
It’s not all fun and games, though. If you go through a bankruptcy, your credit takes a major hit… although if you’re considering filing, it’s probably already lousy. A decade must go by, before it disappears from your credit report.
To be considered eligible for chapter 7 bankruptcy (there are others, like Chapter 11 which is more of a long-term repayment schedule on easier terms, and a Chapter 13 which is similar and has tax bill-reduction advantages, earning the moniker “Tax 13”) you first undergo a “means test.” It’s pretty casual, and is based on your income. I just looked up my zip code in Colorado and if your household consists of three people and you make under $76,458, Chapter 7 might be doable for you.
Surprised at how high the figure is?
So was I.
For a single-person household, the figure is $52,389. I recall it being lower in 2012, but I still passed with flying colors.
If you’re confident you’ll be granted a discharge, your next step is to file for bankruptcy and prepare to stand before an official called a trustee. He will look over your assets and decide how to distribute them amongst creditors. This in-person meeting is called the “meeting of the creditors” or a “341 hearing” because of its designated U.S. Code number. There, your creditors have the opportunity to show up and question you.
Most people opt to hire a lawyer to assist in this whole deal, because a mistake in the paperwork can understandably suck.
You could be denied a discharge and would have to start over
I searched around online and found an attorney with the last name Jude, who named his law firm Jude Law. That alone was enough for me to like him (and, yes, later when I showed up in the waiting area, there was a signed photo of the actor Jude Law framed and hanging on the wall. Awesome).
I filled out the online form on the website one Sunday and within 30 minutes I got an email response from an employee there, and even the attorney himself, saying they could help. “Now here’s a business that’s on the ball,” I thought.
I showed up at their offices. They outlined their services, fees, and I decided to retain them. They gave me a list of needed documents, like tax returns, credit card bills, debt collector information, and I showed up a second time to organize the official filing.
We listed every single creditor I had and every dollar I owed, as well as all my assets
There weren’t much of the latter.
I asked about a thousand bucks or so I had in a mutual fund. A lady there replied, “Hookers. And blow,” while ticking off two fingers. Then she clarified: “Spend it. Just keep the receipts.”
Then, they mentioned something to me, almost offhandedly, that I didn’t read about online:
“There’s a chance that, even if you get a discharge, you’ll still have a quarter of your savings taken from you, to pay your creditors.”
“Do you know what the odds are that’ll happen to me?”
She shrugged, “Depends on the trustee.”
When it came time to sign the papers, I asked the lady there to snap a few photos of me with my camera phone, and she obliged. I was wearing one of my favorite t-shirts which had the phrase “Future Millionaire” embossed on it, with some little dollar signs.
The shirt was created as a joke, but I wasn’t fooling around
They said they’d file in a few days, and they gave me a phone number to give all my creditors when they hit me up for payment. Reason being, as soon as you or your lawyer files for bankruptcy, you’re granted an “Automatic Stay” which means nobody can get their greedy paws on your money until your hearing, whether or not you’re actually discharged from your debt.
As I left, the lady repeated: “Hookers and blow.”
Thinking about how a fourth of my bank account savings could be taken away, I made a trip to Walmart. An expensive one. I took note of all the things I usually bought, and grabbed a whole cart-full. Pasta, socks, sauce, maple syrup, cheese, flour, shirts. Even some stuff I’d been meaning to purchase, like a can opener.
Looking back, I question the morality of my action (and, honestly, I could Monday-morning-quarterback all of this) and I don’t have an easy answer about whether or not I did the right thing.
As the debt collection companies called me one by one, I cheerfully answered and informed them of my filing
I took special pleasure in contacting the company acting on behalf of the State of Colorado, which was automatically drafting money from my bank account.
Funny thing: When you file, a date is set for your court appearance. Around the same time, I happened to get a notice for jury duty. So I asked the assistant at the law firm what would happen if both appointments fell on the same day (more and more, I was practicing “inspect what you expect”). She got the attorney on the conference line to ask, and he walked in.
Imagine a guy shrugging his shoulders and saying with a Texas accent, “Don’t even go! It’s not like they’re going to throw you in jail or anything.” Yeah… this was the guy I just retained to legally represent me.
Heh, the appointments never ended up conflicting. In fact, the court case I was summoned for, ended up not requiring a jury at all.
So I went to the movies that day instead
My Meeting of the Creditors, however, was still on. So a couple weeks later, I walked across downtown to my hearing. It would be… very different… than I expected.
Definitely much more strange.