After losing my job and not being able to pay my bills I had a couple of credit card companies take me to court. They got judgments against me, which I still can’t pay. Can these judgments be wiped out if I file for bankruptcy?

If you are filing chapter 7 bankruptcy judgments are basically considered like any of your other debts. You will include the judgments on your schedules and include the information on your statement of financial affairs. The companies that received the judgments will have the opportunity to speak on their behalf just like any of your other creditors. If the judgment is discharged with your other debts then it will be forgiven and removed from your credit report. If you are filing chapter 13 the judgment debts will be included in your repayment plan like your other debts and discharged at the end if you complete the 13 repayment plan.

Are my creditors notified about my bankruptcy filing by email, or phone, or what? Do I have to tell them I’m filing for bankruptcy? I’m so scared to talk to them, I can’t pay them.

As soon as you file your bankruptcy petition an automatic stay goes into effect. This stay stops creditors from being able to contact you about the debt or try to collect on the debt. It’s one of the best aspects of bankruptcy for a lot of people because the constant calls can be so humiliating and annoying. Creditors are notified by mail however, so it could be a few days before they know about the bankruptcy. If you are brave when they call you can simply tell them you have filed and give them your bankruptcy case number so they can verify. At that point they will no longer be able to contact you. If you are not comfortable doing that, you can just wait until they receive the notice in the mail.

I’m worried about a friend that is considering filing bankruptcy. What are the effects that bankruptcy will have on her as she moves forward in life? Does a bankruptcy go on personal records that credit companies will see, or employers? How long will this affect her?

A bankruptcy filing stays on your personal credit report for 10 years. Any time someone pulls her full credit report for approving her for a loan, credit card, or even employment, they will see the bankruptcy filing. Filing for bankruptcy however can actually improve ones credit if it’s been severely impacted by late or non payments. By filing she can start improving her credit much more quickly, so the affect will depend on what she is planning to do in the near future. Any debts she files on that are discharged will be wiped from her credit reports so no one will see those late payments. If she doesn’t intend to buy any large purchases for which she would need a loan for the next 5-7 years and is currently employed and not intending to leave she may not really be affected at all. Bankruptcy gives people a new start, but the biggest thing is learning from the mistakes already made so that they are not made again.

I’m wondering how filing bankruptcy works if you are married. For instance, what happens if one of us has really bad credit but the other one has good credit, do we have to file together? Can just one of us file bankruptcy without it affecting the other person? I don’t want a bankruptcy to make my spouses credit rating go down.

As a married couple you can choose to file bankruptcy together or separately. Even if you are married though some of your spouses information will need to be included such as assets you own together, debts you are responsible for together, expenses, and possibly their income to determine if you are eligible to file. If you are filing separately, debts you owe together will not be totally wiped out, you may have the debt discharged if you are filing chapter 7, but your spouse would still be responsible for the debt since their name is still on the debt. If you have no debts together then any debts that are discharged are gone completely.

Maybe I don’t understand bankruptcy policies, but how can the federal government spend billions of dollars bailing our corporations that fail, but can’t wipeout student debt for millions of students that can’t pay back student loans because they can’t find a job? Why can’t student loans be forgiven in bankruptcy like any other debt?

There are a number of issues here. First is the extreme expense of education. Almost everyone needs some amount of financial help in order to afford college. Second is the likelihood that the borrowers would be able to pay back the debt. As you’ve pointed out, right now that likelihood is pretty low. For a bank to make a loan they need to see a payment history and income, two things that most kids going to college don’t have. No banks would make a loan to a student, so the government stepped in and created government backed student loans that could not be discharged in a bankruptcy to ensure that banks would give out loans because they were ensured to be repaid.

There is actually a way to have student loans discharged in bankruptcy however. You must prove several things including that the debt repayment amount is significant enough to affect the minimal standard of living and this will continue to be the case for the foreseeable future.

This is a tough question that most people who are thinking about filing bankruptcy ask themselves at one point or another. The question comes about because when you say you are going to do something, morally you should do it, so when you take out a debt and promise to repay it, the morally right thing to do is repay it. Like most things however, bills don’t exist in a vacuum, there are other factors that will play into the morality of paying bills that you can no longer afford.

There are two things I look at when judging a moral bankruptcy, were the debts made in bad faith, or good faith. If you truly believed you would be able to pay back the debts when they were made, but them something happened that affected your ability to make the same amount of money that would allow you to pay the debts, that is good faith. If you made the debts knowing that you would not be able to pay it, that is bad faith.

For instance, you lose your job and can no longer afford the monthly payments but had you kept your employment, you would still be making the payments, that is good faith. If you lose your job and decide to take one last blow out vacation because you realize you won’t be able to afford one for a long time, and hey you can just include the credit card debt in bankruptcy, well, that is bad faith.

Even if you believe you should pay debts that you made in good faith, filing bankruptcy isn’t always morally wrong. If you have credit card debt and a mortgage debt and are having financial problems, you could end up in a situation where you lose everything, but if you file bankruptcy, you could save your home and continue on to pay off that debt. Yes, the credit cards didn’t get paid, but you took care of your largest debt obligation, and made sure your family had a roof over their head. Taking care of your family is a moral obligation as well, so where do you draw the line?

Morality is often personal, and rarely black and white. The bottom line is bankruptcy can help you by relieving stress and depression, making your finances manageable, and allowing you to keep the property you need in order to live, like your car and house. While it’s easy to sit back and judge those in positions less fortunate than ourselves, none of us truly know what we would do in a situation until we are there. If you are worried about your own morality, consider all of your options, and remember that you can always repay a debt even if you have included it in a bankruptcy filing once you are in a better financial position.

Once we received the modification for our first mortgage, after the 18 month wait, it took a matter of days to modify our second mortgage. Yes, days. Why? Because if our house is foreclosed on, the bank that holds our second mortgage will get nothing, $0. They want to avoid that as much as possible so they made the process extremely easy.

By the way this is how our mortgage was modified. The first mortgage they took our back payments and added them onto the top (which doesn’t make much sense because we are in essence then paying the back portion twice as we catch up to where we should be and then again when we pay the portion they added on, but we didn’t have much of a choice.) They lowered our interest to 2% with a step up to 3% and then 4% after a certain number of years, and increased the loan to 34 years. Our payment went from almost $1600 to $912 a month. On our second mortgage they took $8k and spaced that out over 25 years I believe, and then there is a balloon payment of the other $65k. So, we are only paying $30 a month for our second mortgage (we are paying more so we don’t have the balloon even though it’s doubtful we’ll be here in 25 years.)

So, the really scary part was over, our house was safe. During those two years a credit card company got a judgment against me because I was unable to pay the debt as we struggled to keep both of the houses and take care of our children. (A little digression here, people always believe everyone just runs out and files bankruptcy at the drop of a hat when nothing could be further from the truth for most of us. We struggle to make things work, we want to pay our bills and avoid bankruptcy, but we learned along the way that creditors don’t want to be flexible.) I tried to negotiate with the creditor, but they would have none of it. The debt is for a little over $7k from business expenses, and their idea of settling was me paying $200 less than I owed. Helpful! Not.

So they filed for a judgment and received it. Unfortunately for them, I don’t own much. We own our house, but it’s in both of our names and worth less than the mortgage so they couldn’t touch it. There is nothing in my bank account, so they decided to go after the only thing they could – my car. Both of our cars are paid off, we worked hard to buy cars and not have car payments. We drive our cars until they die. They are both over 8 years old and have almost 200,000 miles each. Of course the credit company didn’t know that, so they thought they could get something out of my car.

The day the sheriff showed up on my door I knew the end had come, I would have to file bankruptcy. I had no choice. I have children I have to get to the bus stop each day that is 3 miles away, our grocery store is 20 miles away, we need our cars. Since my husband is often at the other house with his children, we must have 2 cars. I started filling out the bankruptcy petition, doing research to make sure I was doing everything right when I stumbled upon a form on our local court website that would save the day and put bankruptcy off for at least awhile.

In our state when someone puts a levy on your property there are state laws that grant exemptions (just like bankruptcy exemptions but without having to file bankruptcy) to certain property and all you have to do is request a hearing and prove that it’s exempt. I rushed down to the court house to file and the hearing was granted for a week later. When I arrived at the courthouse for the hearing I found out the creditor had the case dismissed because they knew I would win. I was so relieved, my car was safe and I hadn’t had to file bankruptcy to do it.

Now we wait to see what happens next. Hopefully we can keep everything going, but I know that bankruptcy is a great option, our last option, but it’s there if we need it.

Part 1 – Filing bankruptcy, a true story
Part 2 – Loan Modification
Part 3 – Foreclosure
Part 4 – Judgment

After waiting 18 months for word on our mortgage modification application, we were exhausted. It had taken another 9 months for my husband to find a job. As an older man with no college degree working in a field that is slowly being exported to countries like Mexico, he decided to try a new field. He got a job making $30k less than he had before, and we still had 2 homes to pay for plus his child support even though we still had the kids 50% of the time. At the same time, his ex sued him for custody again, the 6th time, and we had to pay more attorney fees to try to keep them.

I was ready to give in when we got a letter that indicated we would have to pay all of our back mortgage within 30 days or face foreclosure. The next day I received our mortgage payment back in the mail saying they would not accept anything but the full amount. I was livid. We had been waiting for word on our mortgage modification for 18 months, we called at least once a month and no one could tell us anything other than we were still in the process which could take a long time. Clearly! I admit, I lost my cool on the phone.

As I said before, the modification department doesn’t talk to the collections or foreclosure department. On top of that, when they put the approved lower payment in for the modification application they only put it in for 18 months and then it automatically stops and they expect your full mortgage payment, of course no one told us that. That’s why our payment was sent back. I talked to 3 different people, one told me we were still in mortgage modification, one told me foreclosure was starting, and another told me that if foreclosure was started and we were still in the modification program that they would put off the actual sale until a decision was made on the modification. That left us in a position of possibly having a single days notice that our modification wasn’t granted and we would be losing our home at Christmas. I wasn’t waiting.

I politely told the mortgage company they were not getting another dime out of me. I called our Realtor and we started looking for a rental home in our community and getting short sale paperwork ready just in case we could get a quick offer on the house. Once we were set with the Realtor we called the mortgage company for a short sale packet.

Imagine our surprise when they said our modification had JUST been approved! I’m pretty sure it had to do with two things. First they had just sent out an appraiser to value our house and they found out they would be losing at least $150k if they had to sell our house, and second that I was no longer going to pay our mortgage unless the modification was approved.

You want to know the real irony of all of this? It took our mortgage company 18 months to decide to finally grant us the mortgage modification. When they sent us the paperwork to sign, they gave us ONE DAY to sign and return it. ONE DAY. One mortgage was done, we still had one more to go, and we had to figure out what to do about our other bills that were piling up again after my husband lost his second job in 3 years and finally found a new job making $30k less.

Part 1 – Filing bankruptcy, a true story
Part 2 – Loan Modification
Part 3 – Foreclosure
Part 4 – Judgment

After my husband lost his job the second time when the company laid off 50% of the workers, we were in real trouble since we had 2 homes to pay for. While it would have been nice to just get rid of one, because of our custody situations, we would have had to decide which of our children we would no longer see. Not a choice we were willing to make. Our mortgage on our main home was our largest expense so we immediately contacted our mortgage holders to see what we could do.

We knew we would begin having a problem paying our full mortgage and all of our living expenses, which would lead us down the road to foreclosure and filing bankruptcy. We needed a miracle to stop the process and we hoped a mortgage modification would do the trick. This was literally the month Obama announced his mortgage modification programs so we were hopeful. Our first mortgage was lowered about $600 until they decided whether or not we would be approved for the modification. Now here’s the scary part. If we weren’t approved, we would owe all that back payment AT ONCE and if we couldn’t pay, we would face foreclosure.

We called the bank every month to see where we were in the process, and every month we got the same answer, “it takes a long time but you are still in the process, call back next month.” While you are in modification you are behind on your mortgage and you remain in the collection process. See the modification department doesn’t talk to the collection department or the foreclosure department, so you continually have to deal with collection calls and eventually foreclosure proceedings. We were in the modification process trying to avoid foreclosure and bankruptcy for 18 months when we thought the bottom was finally going to drop out.

Part 1 – Filing bankruptcy, a true story
Part 2 – Loan Modification
Part 3 – Foreclosure
Part 4 – Judgment

We had everything in the beginning and we had worked hard for it. We bought a business that we hoped would become our main source of income and were trying to buy another business when our my husbands company announced they were moving across the country. Within 3 days we had sold off the parts of the business we could, and shut down. The only outstanding debt for the business was the rental contract for the space, and a couple of personal credit cards I had used for advertising fees. Luckily I had been smart enough to negotiate taking over the lease of the prior business owner so there was only $17,000 left on the lease rather than $120,000 that would have been there had we signed a 5 year lease. Of course, we still had to decide what to do about the $17,000. While filing bankruptcy loomed in the back of our minds, I wanted to put it off as long as possible, so we waited to see what would happen.

It took 9 months for my husband to find a job. This was almost 4 years ago, before the recession began, before the unemployment rates started to skyrocket, and before everyone starting losing their homes to foreclosure and running to the nearest court to file their bankruptcy papers. During this time the rental company got a judgment against me for the debt, but there was nothing they could do to collect it because I don’t own anything other than our house which already has a mortgage on it, and my car which isn’t worth nearly what I owed them.

Every day seemed to be getting better, we kept our heads above water catching up on my husbands bills that piled up while he was on unemployment. You see he also has children that we had been fighting to get custody of for 3 years. He had a large child support obligation, so large that he only had $200 left of his unemployment after paying child support each month. Right before he lost his job we finally won 50/50 custody, but we had to move to their home state in order to take custody. With my children in another state, the only way we could do this, was to get a second home, and pray he found a job that would let him telecommute between the two states. This is exactly what happened, of course our expenses doubled.

Everything worked out for almost 2 years until the company laid off 50% of it’s workers. So now we were left with 2 houses, we were still paying child support even though we had the kids 50% of the time (welcome to family court Dad!), and we had to do it on basically one income. We still didn’t want to file bankruptcy, so we tried everything we could.

Continued in Part 2 – Loan Modification
Part 3 – Foreclosure
Part 4 – Judgment