NDSU Extension Service - Ramsey County


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Bankruptcy Offers Limited Resolution

Bankruptcy Offers Limited Resolution

Filing for personal bankruptcy is a big step and bring resolution to a severe financial crisis but bankruptcy is not a fresh start or a clean slate.  In some unfortunate circumstances, bankruptcy can create more problems than it solves.

Personal bankruptcy, Chapter 7, is a court administered process which removes some of your debts. The court gives creditors a prorated amount, depending upon what you owe and own.

After bankruptcy, you still owe:

  • Federal, state, and local taxes.
  • Child support and alimony.
  • Fines such as traffic tickets.
  • Loans that you still owe for cars, appliances, and furniture.
  • Government backed student loans for college.
  • Debts resulting from lawsuits for intentional injury to persons or property.
  • Money you owe for illegal debts such as bounced checks.
  • Debts of $500 or more for luxury goods that you incur within 40 days of filing.
  • Open-ended credit of more than $1,000 that you obtain within 20 days of the petition.
  • Debts resulting from fraud or misrepresentation such as false information on a credit application.
  • Legal fees and related costs. These fees can run as much as $1,000. You must pay these fees up front and in cash.
  • Bankruptcy will remain on your credit file and harm your credit for 10 years. Some bankruptcy information can be given out for the rest of your life if you apply for: a job that pays more than $20,000 or requires a security clearance or bonding, life insurance with a face value of more than $50,000 or a mortgage or other loan for more than $50,000.

    If you want to protect yourself from having to file, try some of the following to pay off your debts:

    Until you pay off your debts, cut up and return all of your credit cards. Or freeze your credit cards in an ice cube tray in your freezer. Promise yourself to leave them there until you are debt free.

  • Increase the number of your withholding exemptions if you have been getting tax refunds
  • Shop for lower cost auto insurance, or get it from the same company as your homeowners' insurance.
  • Sell personal items such as boats, cycles, guns, or other hobby or recreational equipment.
  • Involve every household member in a "treasure hunt" of unused items. Sell these through the classified ads or in a garage sale.
  • Find a temporary second job.
  • Turn a personal hobby into an income-producing hobby.
  • Use extra money from sales or second jobs to pay off your debt right away.
  • Speak to the credit managers of the places where you have payment problems. Explain why you cannot make your scheduled payments right now, and ask for a reduced payment for a while. Get a clear agreement on any reduced amount you will pay each month and exactly when it will be due. Faithfully keep this new agreement.
  • Ask credit managers to report your new, smaller payments to the credit bureau as "on time." Otherwise the credit bureau may record these payments as delinquent because you are paying less than in your original credit agreement.
  • Try to solve auto loan problems with your creditor as soon as you realize you can't meet your payments. Creditors can repossess your car any time you are in default on your payments. They do not have to let you know in advance. If creditors repossess your car, you may have to pay the entire balance on the loan as well as towing and storage costs to get it back. You may want to sell your car and pay off your debt. By selling your car, you can avoid the costs of repossession and a negative entry on your credit report.
  • Contact the financial institution holding your mortgage, and tell them of your situation. Make arrangements to pay just the interest on your mortgage until you have caught up on your debts.
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