Lets talk about why NOT to file BK?

[bornfree2]

What are the top reasons NOT to file BK? From what i can gather

1- 10 year mark on my credit report
2- filing info is public and entire world can see it, data crawl it, forever!
3- i loose my last resort of protection option.
4- other?

re #1 - for me it will have its depressing effects when i try to move to a new place, apply for a job, apply for new credit. yet ive also heard this starts to go away after 1 or 2 years.

re #2 - who knows what privacy and security issues i will have when databases, google, etc swallow up and trade my financial life.

but its #3 that gives me pause to think. The BK seems to be the only 'umbrella insurance' policy the regular man has against ANY creditors. At present, im feel im being hussled to do this due to a credit card lawsuit against me. Since i have no experience with what a 'judgement creditor' in my life will be, im throwing out this BK card now.

Something is telling me this is may not be the best move right now. That perhaps some other big debt event will hit me and i wont have any protection.

On the other hand, id love nothing more than a true fresh start and intelligent planning of my affairs (like operating as an LLC like the rich boys do).

Any one out there want to chime in on unseen negative effects of doing a BK?

[shipo]

Other than the fact you cannot refile for some number of years, and obtaining credit can be a challenge immediately after the event, I can't think of any tangible negatives. FWIW, I think the 10-year report on your credit reports and the public record are red herrings and nothing to worry about.

My wife filed Chapter 7 in 2014 and I filed Chapter 13 a year later; we both have "Good" credit scores now and the magical 750 mark for "Excellent" is within striking distance for her and less than a year away for me.

[Ekop785]

Maybe if someone wanted to take out a mortgage? But by the time most people file, their credit is tanked, anyways. Plus, BK eliminates DTI (which is a good thing).

But unless you are using a predatory lender, most mortgages require you to wait 2-4 years (depending on the mortgage type).

[justbroke]

The most interesting thing is that people in Chapter 13s can actually take out an FHA mortgage with trustee/court approval. And, as Ekop785 writes, you could even get an FHA loan 2 years after Chapter 7. You could get a conventional loan 4 years after a Chapter 7. With a Chapter 13 you fare even better with 0 years after a Chapter 13 for FHA (you can get them during an active Chapter 13 that has been in plan for at least one year), and 2 years for a conventional (conforming).

There are more negatives to not filing bankruptcy, than there are related to actually filing bankruptcy.

(For a Chapter 13, a discharged bankruptcy only stays on credit report for 7 years. The affect of a bankruptcy wanes over time. Within 2 years after discharge, most debtors are back into the low-mid 700s if they maintain good credit behaviors.)

[shipo]

The most interesting thing is that people in Chapter 13s can actually take out an FHA mortgage with trustee/court approval. And, as Ekop785 writes, you could even get an FHA loan 2 years after Chapter 7. You could get a conventional loan 4 years after a Chapter 7. With a Chapter 13 you fare even better with 0 years after a Chapter 13 for FHA (you can get them during an active Chapter 13 that has been in plan for at least one year), and 2 years for a conventional (conforming).

The wrinkle for an FHA mortgage between the Chapter 13 discharge date and that date plus two years is you cannot get an FHA mortgage which is automatically underwritten; you'll need to find a lender which will do manual underwriting to be able to get the mortgage.

There are more negatives to not filing bankruptcy, than there are related to actually filing bankruptcy.

Totally agree.

(For a Chapter 13, a discharged bankruptcy only stays on credit report for 7 years. The affect of a bankruptcy wanes over time. Within 2 years after discharge, most debtors are back into the low-mid 700s if they maintain good credit behaviors.)

I'm only 14 months post-discharge and am already showing about half of my FICO and Vantage scores up over 700, some as high as 750. Given I had a recent round of application and new account activity (including a new card reporting a high utilization because it unexpectedly reported before the statement was cut), I'm thinking most of my scores could improve over the next 60 days with no other changes. Thinking forward to next February when I hit the 7-year window on my Chapter 13, I'm wondering if pretty much all of my scores will be at or above 750.

[flashoflight]

For mortgages, it's way better to have the bankruptcy if your credit is trashed despite having to go through manual underwriting. The FHA manual underwrite is a temporary bridge loan and not a forever mortgage. That monthly MIP won't last forever.

The FICO score makes a huge difference in pricing. Your credit score will rise months after filing, especially if you open a few new tradelines and practice AZEO.

Your DTI is a lot better with all of the credit cards you burned being excluded. Your negative pre-petition housing payment history doesn't count as well.

[Carmella]

While BK is public record I don't think it's that easy for the average neighbor to find out you have filed. I think you really have to seek it out and if you did you would be VERY surprised how many people have filed BK. I have a PACER account and did some searching. I felt kinda like a "creep" at first, but it was for my own knowledge and I did not run around gossiping about these people. It was very eye opening for me to see that people I would never have guessed have filed BK. I started looking because someone (my daughter's ex-fiance mother) accidentally slipped a comment about a BK payment which was around the time we were considering filing. I could tell she let it slip and didn't want to talk. And since shortly after the relationship with my daughter and her son was falling apart I never felt comfortable asking her. I really wanted to ask and have a real life BK friend.

I did know one person who filed BK, twice, but both of hers were Chapter 7. We would compare notes, but it was different. Unfortunately, she passed away a year ago around Christmas.

I got long-winded, but I don't think most people will know you filed BK and there's a stigma so few people discuss it.

I was surprised my next door neighbor filed BK, I would never ever have guessed it. I just put his name in the PACER search because I was putting in random people. And I did not share that info even with my husband because I didn't want it to accidentally slip out in conversation with that neighbor or any of other immediate neighbors because I know my husband might unintentionally slip.

[shipo]

And then there are those of us who pretty much share our Chapter 13 experience with most everybody in our inner circle.

[flashoflight]

I give my chapter 13 a disguise. It's a Dave Ramsey plan where I get to do the "debt free scream" in exactly 60 months. Only my closest friends know it's actually a chapter 13.

PACER is not user friendly either. Before COVID, it was clear the court clerks weren't going to help you at all if you were struggling at the computer terminals.

[shipo]

Many of us are not fans of the Dave Ramsey plan and wouldn't be caught dead admitting to following such a plan.

[bornfree2]

I give my chapter 13 a disguise. It's a Dave Ramsey plan where I get to do the "debt free scream" in exactly 60 months. Only my closest friends know it's actually a chapter 13.

PACER is not user friendly either. Before COVID, it was clear the court clerks weren't going to help you at all if you were struggling at the computer terminals.

I have been using courtlistener's RECAP free database https://www.courtlistener.com/recap/. It lets you full text search across dockets. Great way to find past filings, attorney numbers, etc. I put a post with some tips here

https://www.bkforum.com/forum/before-the-discharge/pro-se-pro-per-filing/1026058-tip-use-courtlistener-to-find-filings-to-study

[bcohen]

Out of all the reasons mentioned, #3 is the only valid concern. The rest are a bunch of bullplop. It goes without saying that one should avoid declaring bankruptcy (unless facing some imminent crisis such as repossession, eviction, or garnishment) until they are gainfully employed and able to make ends meet on their current income. If one has ongoing medical problems, it would be foolish to declare bankruptcy until those are resolved. Otherwise, you will end up even worse off, because creditors will be extremely aggressive, knowing that you can't file again for another 8 years.

[bornfree2]

Out of all the reasons mentioned, #3 is the only valid concern. The rest are a bunch of bullplop. It goes without saying that one should avoid declaring bankruptcy (unless facing some imminent crisis such as repossession, eviction, or garnishment) until they are gainfully employed and able to make ends meet on their current income. If one has ongoing medical problems, it would be foolish to declare bankruptcy until those are resolved. Otherwise, you will end up even worse off, because creditors will be extremely aggressive, knowing that you can't file again for another 8 years.

I suppose the way to live post BK is with good insurance (harder to get with a BK?) and through an LLC structure for income/property. Seems thats how the past president got his teflon suits tailored.

[justbroke]

I suppose the way to live post BK is with good insurance (harder to get with a BK?) and through an LLC structure for income/property. Seems thats how the past president got his teflon suits tailored.

An LLC is not 100% protection if you don't actually operate the company properly. An LLC doesn't protect an individual from taxes either, as it's a pass-through entity just like an S-Corp (unless elected to be treated like a corporation). Just about any major business is incorporated or is shielded as a Limited Liability Company (LLC).

No one is going to rent a residential apartment/housing to an LLC without a personal guarantee. (Exceptions if the LLC is well established, has a D&B of 80+ with an Experian of 80+, and does some high revenue annually. You see, it's that personal guarantee that gets most of those, like me, that have LLCs. It's not a cakewalk and you can't just walk away.

There's no magic sauce there and it's not any particular person that makes a corporate structure magical. Many individuals have protected themself from their business life to the tune of trillions of dollars in losses over the years. The purpose is to not injure the person because of a business failure.

If I were to put my properties in an LLC, that's still a personal loss to me and any partners in my partnership (an LLC is a form of partnership unless it's a single-member LLC). Business organization is a serious, well, business. Because a tenant thinks I'm protected is meaningless. I would have put up at least 20% or more in my own money to purchase a property as an investment. I would have worked to maintain the property and to keep my investment appreciating.

In fact, I may rent it for less than the PITIA because it is an investment. That means that when a debtor doesn't pay the 70-80% of the total cost of my ownership, I'm no longer just paying 20-30% of the value... I'm paying it all. I could lose my 20% investment plus the 20-30% that I have paid annually towards just paying the PITIA. That doesn't include maintenance, emergencies, and other issues.

More and more sole-proprietorships are switching to LLCs but still need to be very very careful about it not becoming simply their alter ego. I think that most small businesses should be an LLC since it's automatically treated like an S-Corp with all income/losses as pass through. That gives the proprietor "some" protection if they keep their books correct. But, alas, most small business owners don't even keep simple accounting, or have a good bookkeeper. Going to a CPA once a year for taxes, does not count.

[shipo]

To add to what justbroke wrote, I was a part owner of a full C-Corp and still needed to personally guarantee many of the loans the company took out; that didn't protect me when the business failed (hence my Chapter 13).