Considering Chapter 7 Bankruptcy or Ride it Out?

[Jan0004]

What is the name of your state (only U.S. law)? Florida

I'm considering Chapter 7 Bankruptcy or just riding it out. Collection calls do not bother me nor do their annoying tactics. However, the possibility of judgments (which I know are rare) and wage garnishments (which I know are also very rare because I am self-employed) are a concern. To be concise, here are the facts:

I am single, 43yo woman, self-employed (low-income), I have NEVER filed for bankruptcy, in the good days I owned two properties but lost my house in 2009 during the burst (foreclosure, 1st mortgage $180K, HELOC $100K) and subsequently moved into my only other property (an investment condo) that is currently under foreclosure (sale date in couple of weeks). The condo has a 1st Mortgage of $80K and a 2nd of about $26K but has a resale value of $40K (which is why I have no interest in keeping it and filing Chapter 7). I've been repeatedly trying to apply and fight with the mortgage company to offer a Deed in lieu but they keep taking their time and giving decisions at the last minute (where it is virtually too late for me to react). I have one 2010 Judgment/Lien of $14K from an unsecured credit card that is apparently the reason for their denial of my Deed in lieu application. I will file a Motion to Cancel the Foreclosure Sale and Reschedule Date to allow for more time for me to try to negotiate the judgment out, but I doubt the courts will grant it.

Besides the above, I have about $25K in additional credit card debt from 2009 that have since been closed and sent to collections (is the term discharged?). I do not have any assets to speak of other than personal items and a car that is probably worth $2,500 that I use for my business and personal.

If I need to, I can probably gather the $1500 to $2000 needed to file Chapter 7 OR to negotiate a deal with the Judgement Holders. The only reason I would negotiate with the judgment/lien holders ($14K) would be if the courts granted extra time (therefore making it worthwhile because I would essentially get a few extra months of "no rent" AND, with a Deed-in-Lieu" I would be eligible to stay longer at no charge (3 months) or rent the property at Fair market Value (which I prefer) for up to 12 months and be eligible for up to $3000 for cash-for-keys. If i can't get extra time then it would make no sense for me to negotiate and i would have to consider filing Chapter 7 OR moving out within this month because of the looming foreclosure.

So, I know it is illegal to file Bankruptcy to delay a foreclosure and I DO NOT plan on doing this. If I do it, I will file it because i plan to go through with it.

I see the advantages of filing bankruptcy within the next two weeks as being: (1) It will delay the sale of the foreclosure and any months I gain (3 to 4 months, I hear, is this accurate?) are extra "free" rental months I could think of as paying for the bankruptcy fees; (2) A clean slate with no concerns of any future judgments or collections from past creditors (even though I hear it is extremely rare for a company to attempt wage garnishments on a self-employed person AND for banks to sue for the remainder after foreclosure)

The disadvantages of Filing Chapter 7 are: (1) Obviously the 7 year stigma on the credit report; (2) The fact that every family member and trusted well-to-do friend (one is a banker) says one should NEVER file for Bankruptcy unless if it is the last resort or due to huge medical bills -- even like that, they advise against it; (3) It will no allow me to file within six years and what if I have a true medical catastrophe with bills (I know, paranoid); (4) My credit is shot, anyway, but it would be easier to rebuild credit with due diligence WITHOUT filing (true?).

So, What are your thoughts? I would also like to hear the reasoning from individuals that have filed or chosen not to file. Also, any other ideas to delay the foreclosure and, of course, your thoughts about whether or not Chapter 7 is a poor or good idea for my situation.

Thank you so much in advance for your replies.

[LadyInTheRed]

Welcome to BKforum. I don't have a lot of time right now, but have a couple of quick thoughts.

(4) My credit is shot, anyway, but it would be easier to rebuild credit with due diligence WITHOUT filing (true?).

Not necessarily. Many people see an improvement in the score immediately after discharge because they suddenly have no unsecured debt. Also, without BK, the judgment will remain and you may get additional judgments against you. Judgments destroy your credit as much as BK and the only way to be certain to prevent more judgments on your existing debt, other than paying the debt in full, is to file BK. You could wait to file until you actually get sued, but then your credit rebuilding will start later and your bad credit will be with you for longer.

That said, credit scores are overrated. The effect that filing BK will have on your credit score should be at the bottom of your list of factors to consider.

Garnishing wages of the self-employed is not rare, it is impossible. You have no wages to garnish. But, a judgment creditor can go after your bank accounts and could even intercept your accounts receivable. I can't tell you how common this is.

According to my Google search, the statute of limitations to sue on credit card debt in Florida is 5 years. State law varies, but that likely starts from the date of default, assuming you didn't make any payments or promises to pay after the default. Don't count on creditors not suing until the 5 years have passed. In fact, they might sue you after the 5 years passes, but you will have a defense.

I am not familiar with the FL foreclosure process and how long you can expect to stay in your home with or without bankruptcy. I bet JustBroke will come along with information about that.

(2) The fact that every family member and trusted well-to-do friend (one is a banker) says one should NEVER file for Bankruptcy unless if it is the last resort or due to huge medical bills -- even like that, they advise against it;

It is true that BK should be your last resort. But, that doesn't mean you should put it off if you have no other way to pay off your debt within the next 3 to 5 years. Don't listen to anybody who advises against BK regardless of your circumstances. That perspective is useless to you.

I don't have a strong opinion either way on whether you should file BK and, if so, whether you should file now or later. But I hope I've given you a couple of things to think about.

[ValleYum]

Do you have medical insurance?

[despritfreya]

Lady has given you good insight. I just wanted to add a few points:

1.

So, I know it is illegal to file Bankruptcy to delay a foreclosure and I DO NOT plan on doing this. If I do it, I will file it because I plan to go through with it.

It is not “illegal” to file bk and then let it get dismissed. All it means is that if you file within 1 year of that dismissal you must seek to extend the protection of the automatic stay beyond the first 30 days. Not a big deal. If you file a second time and let the second case get dismissed, if you file again within 1 year of two dismissal dates there is no automatic stay.

2. If you file bk before the property is foreclosed you must pay the HOA from the date you file the bk to the date the property is lost to a foreclosure or you transfer title through a DIL.

3. Due to the other debt including the deficiency claims on the already foreclosed property, my “advice” is to file bk. You should want to get all of this baggage behind you regardless of your ability to keep the attitude you currently have (which is a good one). Until you clean up the mess you cannot think about saving for the future. And. . . if you wait too long and do become a higher income earner you may not qualify for the 7.

Have you consulted with local bk attnys? Remember, most initial consultations are either free or at a very low cost.

Des.

[bcohen]

I'm considering Chapter 7 Bankruptcy or just riding it out. Collection calls do not bother me nor do their annoying tactics. However, the possibility of judgments (which I know are rare) and wage garnishments (which I know are also very rare because I am self-employed) are a concern.

Yes, judgments and wage garnishments are a concern, and they are not as rare as you seem to think. In fact, later on in your post, you admit that you already have a couple of judgments from defaulted debts. While being self-employed makes wage garnishment extremely unlikely, it does NOT protect you from having your bank accounts seized and levied by judgment creditors.

If I need to, I can probably gather the $1500 to $2000 needed to file Chapter 7 OR to negotiate a deal with the Judgement Holders.

I very seriously doubt that you will be able to settle more than $14,000 in judgments--an amount which surely grows with interest--for anywhere near $1500 to $2000. Also, since you have plenty of other defaulted debts, settling the judgments which you already have would not help anything.

So, I know it is illegal to file Bankruptcy to delay a foreclosure and I DO NOT plan on doing this. If I do it, I will file it because i plan to go through with it.

I know of no law which says that it is illegal to file for bankruptcy protection in order to delay a foreclosure sale, and doing so close to the sale date will have the effect of canceling the pending foreclosure auction and delaying the sale for several months--or more.

The disadvantages of Filing Chapter 7 are: (1) Obviously the 7 year stigma on the credit report; (2) The fact that every family member and trusted well-to-do friend (one is a banker) says one should NEVER file for Bankruptcy unless if it is the last resort or due to huge medical bills -- even like that, they advise against it; (3) It will no allow me to file within six years and what if I have a true medical catastrophe with bills (I know, paranoid); (4) My credit is shot, anyway, but it would be easier to rebuild credit with due diligence WITHOUT filing (true?).

All of these "disadvantages" are nothing but manure! It appears that you have everything to gain--and NOTHING to lose--by filing for Chapter 7 bankruptcy ASAP. You will be able to delay the pending foreclosure sale, live in your condo rent-free for several months or longer, and wipe out all of your unsecured debts. This will also remove any personal liability for the judgments, provided that you properly list the creditors on your petition. The moment you file, your credit scores--and your creditworthiness in the eyes of prospective creditors--will INCREASE, not decrease. After discharge, your scores will go up even more! After bankruptcy, you are actually a much BETTER credit risk than you would be with a lot of defaulted debt and unsatisfied judgments.

I suggest that you file for Chapter 7 bankruptcy ASAP. If you delay, and the condo ends up being sold, then you will be much worse off, because you will need to move--but have nowhere to go because no one is going to give you an apartment with so many charge-offs and unresolved judgments. Once you have discharged all your debts, provided that you meet the income and employment criteria, you will have no problem qualifying for a rental apartment.

[avengers]

The disadvantages of Filing Chapter 7 are: (1) Obviously the 7 year stigma on the credit report; (2) The fact that every family member and trusted well-to-do friend (one is a banker) says one should NEVER file for Bankruptcy unless if it is the last resort or due to huge medical bills -- even like that, they advise against it; (3) It will no allow me to file within six years and what if I have a true medical catastrophe with bills (I know, paranoid); (4) My credit is shot, anyway, but it would be easier to rebuild credit with due diligence WITHOUT filing (true?).

These aren't really reasons not to file chapter 7.

1) 7 year stigma is really irrelevant. After you file BK, if you're good with your credit, you can build it back up.
2) True that BK is a last resort. But your sentence seems to say, "it's a last resort, so never do it," which doesn't make sense. It's a last resort, so make sure you actually need/want to do it
3) Thing about this is that if you wait for a medical emergency, you might never file, which might be worse for your credit in the long run. So get health insurance to worry about medical emergencies.
4) "Your credit is shot, so try to rebuild it" makes no sense. The actual truth of bankruptcy is "your credit is shot, so why not get rid of all your debt?" Your credit will remain "shot," but you're a better credit risk because you have no existing debts (except those not discharged).

[LadyInTheRed]

So get health insurance to worry about medical emergencies.

Open enrollment for 2015 policies on the health insurance marketplace begins November 15th. https://www.healthcare.gov/apply-and...eady-to-apply/

[Drazil65]

Also, this is your decision (and any spouse) for the benefit of your life not every family member and well to do friend etc. (don't tell them, solves that one).