 Waiting
out my creditors
|
 Dear
Dr. Don,
What are the advantages of declaring bankruptcy?
Why can't I just ignore my debts for the seven years (five to go)
and not pay anything to the bills? My income is just enough to pay
my home and other necessary expenses due to a breakup. I will not
be able to contribute to any of my debts. In fact, I need public
assistance to help with food, etc. If I just ignore the debts, deal
with the calls, letters, etc., doesn't the debt come off the credit
report in seven years anyway?
-- Delores Debtor
 Dear
Delores,
In your letter you state that your income
is just enough to pay your home and other necessary expenses. Your view of your
household budget may not match those of your creditors or the courts. What happens
if a creditor files and wins a judgment against you and has the ability to garnish
your wages or file a lien on your property? An employer can't fire you for a single
wage garnishment, but it can use multiple garnishments as a reason for dismissal.
You need to determine what's at risk if you merely ignore your debts.
You
may be judgment-proof, meaning that your creditors don't have any means of collecting
on the judgment. If you don't have a steady income or own property, then you may
be judgment-proof, but if wage garnishment or a lien on your property is a possibility,
then you're at risk. A judgment also shows up on your credit report for seven
years from the day the judgment is filed. Your plan of having a clean slate in
five more years can be easily derailed by this legal action. Barring
a judgment, your expectation that charge-offs, and collection accounts will fall
off your credit report seven years from the date of the initial missed payment
is correct. Accounts with delinquencies, however, that are closed by either the
creditor or the debtor remain on your credit report for seven years from the date
that the account is closed. The advantage to a liquidating,
or Chapter 7, bankruptcy is that you no longer owe the debt and you can start
rebuilding your credit history. When you file for a Chapter 7 bankruptcy, the
bankruptcy court will discharge all eligible debts and you no longer are under
any obligation to repay those discharged debts.
The disadvantage is that the bankruptcy court forms
a bankruptcy estate from your nonexempt assets and uses the proceeds
from the sale of those assets to make partial payment to your creditors.
Exempt assets vary by state.
A Chapter 7 bankruptcy filing stays on your credit
report for 10 years, but you won't have to wait 10 years to apply
and get credit. Most filers can qualify for credit about two years
after the bankruptcy has been discharged. Learn more about bankruptcy
by reading the U.S. Courts guide, Bankruptcy
Basics, available on its Web site.
So, you can roll the
dice and hope for the best by waiting out your creditors or file for bankruptcy
and be certain of when and how you'll get a fresh start in rebuilding your credit
history. Weigh what's at risk from the two options. Discuss your situation with
a bankruptcy attorney to see if bankruptcy is right for you and what's at risk
if you don't file for bankruptcy. | 
