Bankruptcy vs. Doing Nothing: A Scenario

[ryan]

Just thinking out loud.

Suppose you had a lot of defaulted CC debt and a mortgage that was in FC as well. In the coming months you would probably have to relocate, etc.

Assume you're self-employed, no family, largely untroubled by creditor calls,
and perhaps prepared to even live without bank accounts.

While strongly considering BK, is there any other option, (besides debt negotiation) that you'd consider? Which status would be worse, credit-wise?
A 'BK OR 'no BK', but a bunch of defaulted CC's/judgments and a FC mortgage?

[Pizza]

The consequences are tied to the laws of your state, and whether or not you can pull off the 'judgment proof' tactic. A collection agency can find you and will then determine if there are assets within its reach. If there are none, some collections agencies give up on you. Note that if they do, you can receive 1099c's - taxes on the 'forgiven' debt. Also, the more creditors you have, the greater the chances that SOMEBODY will bite the bullet and sue.

[HHM]

I really see NO BENEFIT to the do nothing approach.

[blessed]

I'm honestly wondering why people who qualify for a ch7 would choose to do nothing instead of filing. I think as soon as it's realized that short of a lotto winning that there really is no solution to pay everything off you should file. I mean why drag it on? And the sooner you file the sooner you can start over, the 10 years can start ticking.

Just my opinion.

[BuckeyeGuy13]

Credit wise, I would have to believe the "do nothing" approach would make you far worse off than the BK route. With the one option, you will have multiple negative entries, judgements, etc. AND the perception that you've done nothing to rectify your situation. With the other, you will have a "negative" hit with the BK, however you will have the protection of the BK laws AND you will be perceived as doing something about your credit situation.

Knowing your credit is shot already, I would think that you'd at least want to have the perception that you're trying to rectify the situation in front of anyone that is subjectively viewing you as a credit candidate.

[DYLAN150]

Pizza: Let me see if I have this right, if can issue a 1099 if they give up on the debt?

[Tman]

Despite what some say, a bankruptcy is often times considered a positive to one's credit history. At least one took the step neccessary to resolve whatever problem existed. Look at some of the postings about people who have qualified for zero percent financing on car loans or credit card offers after the discharge. I think doing nothing is probably the worst thing you could ever do. The debts and charge offs will follow you forever (I know there are statute of limitations but those can be gotten around and extended for long periods of time) Better to resolve the issue and clear the table, rather than have them pop up later on when least expected.

[dscurlock]

Just thinking out loud.

Suppose you had a lot of defaulted CC debt and a mortgage that was in FC as well. In the coming months you would probably have to relocate, etc.

Assume you're self-employed, no family, largely untroubled by creditor calls,
and perhaps prepared to even live without bank accounts.

While strongly considering BK, is there any other option, (besides debt negotiation) that you'd consider? Which status would be worse, credit-wise?
A 'BK OR 'no BK', but a bunch of defaulted CC's/judgments and a FC mortgage?

It has been about 4-5 years since I have payed any of my
past credit cards, two repos, etc...I continue to this day
to get collection letters. I even got a letter last month
claiming that they was going to get a judgement on me...
was it a bluff, who knows, but to this day, I have not
been sued by any creditor...

Does that mean you can get by like me..absolutely not...
there is no gurantee that you will not be sued..maybe
I have been lucky to this point...

and if they do get a judgement on me, so what, thats
as far as it will go, as I have no real income or assets...

[flyinbroke]

I think no matter what you choose, bad credit will show up forever. A chargeoff can follow you around in the form of zombie debt. A BK is on your credit for 10 years but you get rid of all legalities involved...on the other hand, you have to answer "have you EVER filed..." forever more. This can also apply to judgments if they get them.

You have to figure out which is the better alternative for you. Do your research and ask questions.

[frogger]

The "do nothing" approach is going to get liens and fifas against you. They can last a really long time.....

[Mensa1]

ryan:

It depends on where you are going from here and what YOUR expectations are.
BK is largely about protecting assets from creditors and you have none, then maybe you don't have a reason to file at the moment.

I realize this is contrarian to what most other posters feel but filing now may not be such a large priority and there can be reasons why one would want to wait it out for a while. Especially if there may be some other liabilities down the road that you wish to include; ala additional medical debt in the event you needed further med treatment, and others.

So I wouldn't rush into filing unless you have a reason. If you are self-employed you should be able to qualify at most any point, since it doesn't sound like you have much to protect now. GL

[Tartbird]

I find this an interesting question because we own a business and will probably have to file ch7. Sole prop.

But we are afraid to because we want to keep the business open. The business is on a 28% upward sales trend even in this horrible economy. All equip is used and leased so I think it would all be exempt and we are not making much of a profit yet, so doubt the trustee would be able to or even want to sell the business, but there is that risk. Also, we would not want to include the business lease with LL in the BK, so we would not be fully getting a fresh start if it all went south.

That is why we are not sure what to do....

[ryan]

ryan:Especially if there may be some other liabilities down the road that you wish to include; ala additional medical debt in the event you needed further med treatment, and others.

Exactly. I didn't mention it in my OP because I don't know what time will bring.
But, having a chronic illness and being presently uninsurable, plays on my mind when it comes to BK.

I sometimes worry, what if I file bk to unburden from all this CC debt and possible deficiency mortgage debt AND then, say two years later, I need an expensive ($150,000)+ health treatment? If I'm even able to get it, can I ever repay it?

....which I'll have to, since I will have used my BK earlier. Its just something on my mind.

[Mensa1]

I find this an interesting question because we own a business and will probably have to file ch7. Sole prop.

But we are afraid to because we want to keep the business open. The business is on a 28% upward sales trend even in this horrible economy. All equip is used and leased so I think it would all be exempt and we are not making much of a profit yet, so doubt the trustee would be able to or even want to sell the business, but there is that risk. Also, we would not want to include the business lease with LL in the BK, so we would not be fully getting a fresh start if it all went south.

That is why we are not sure what to do....

Hard to grasp the entire issue in a paragraph on a forum... but, if you can forestall the creditors off for say a yr or so... maybe the best move is to do your own reog plan via an entity, forming an LLC... (using an outside party besides you or your spouse for a decent % of ownership... harder to penetrate lateer if BK occurs). tran sferring over the Lease and any other assets that might be liquidated if Bk as as a sole prop.

Now before everyone comes unglued, timing is everything here. You can't do this this mointh and then Bk next month; forget that. Time and space must be in proper proportion if you go this route. Every move must be measured and precise... and timing must be perfect; but it can and IS done all the time.

Your labor or expertise is not seizable by any court. If you stepped out of th4e business today, and Trustee asked me tomorrow, "How much would I pay for the business...?" What would the answer be? If 50K, then you likely have a problem. If 0, then we are onto somethng here.

[Mensa1]

Exactly. I didn't mention it in my OP because I don't know what time will bring.
But, having a chronic illness and being presently uninsurable, plays on my mind when it comes to BK.

I sometimes worry, what if I file bk to unburden from all this CC debt and possible deficiency mortgage debt AND then, say two years later, I need an expensive ($150,000)+ health treatment? If I'm even able to get it, can I ever repay it?

....which I'll have to, since I will have used my BK earlier. Its just something on my mind.

Exactly Ryan; you represent the perfect example of someone that need not be in a hurry to file Bk. Filing for you represents as much downside as upside, and that isn't a good proposition. Odds must be in your favor, especially when playing such a heavy card as Bk filing. GL, and hoping your health is better than expected or feared.