We get a lot of questions about bankruptcy at LMM but it’s a complicated subject so we brought expert Steve Rhode to help explain the fine details.
Some people consider bankruptcy the easy way out but it’s more complicated that. Any time money is concerned, there is no quick fix. But in some cases it’s also not as dire as some of us believe and may be the best option.
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It takes seven years for bad marks to fall off your credit report but you don’t have to wait seven years to start rebuilding your credit. According to Steve that is just not as big a deal as people make it out to be. Missing payments stays on your record just as long but you’re still paying that bill. About twelve months after declaration, you can get secured credit cards, get better rates on loans and even qualify for a mortgage and car loan. It might not be a great idea to do that, but it is possible.
Bankruptcy doesn’t have to be a last resort. If the amount of debt you have is going to really hamper your ability to retire, screw it. Declare bankruptcy. It’s no moral failing. Do you think the banks and student loan creditors have any morals? Well why in the hell should you take the high road?
Student loans are a different story. Some can be discharged in bankruptcy. Federal loans almost never can but private loans can be under these three criteria:
1. The statute of limitations for repayment have expired in your state.
2. If your loans were for more than the cost of tuition, the amount over the tuition expense can be discharged.
3. If the school you attended was not accredited.
If you are struggling with college debt, look into these three criteria and see if you qualify.
What is the fallout if you declare? You likely won’t lose your home. Bankruptcy may save your house because in some states it removes the second mortgage. You will still be able to get a job, even a job that requires security clearance. Bankruptcy doesn’t solve an over spending problem though. If you’re filing because you have an out of control shopping habit, this won’t solve the root of the problem.
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Declaring bankruptcy does not make you a bad person. Do you really think you’re worse than the bankers who immolated the economy in 2008 and then took massive bailouts and bonuses? Bankruptcy is the only tool that allows you to take some of the power back from creditors.
Rogue Farms Pumpkin Patch Ale: Pumpkin beer for October.
Village Idiot Punk O’Lantern: Pennsylvania brewed pumpkin beer.
Get Out of Debt: Steve’s site about getting out of debt.