When facing financial failure, dealing with creditors can be extremely stressful. Sometimes bankruptcy may be the only available option. However, bankruptcy is not an easy situation to deal with. It can have long-lasting impacts on your credit and can ruin it for years to come.

This is my experience of going through bankruptcy so you may have a different situation. I wanted to share the process that we went through in hopes you will have a better understanding. As always consult a lawyer before moving forward.

At the point we decided to declare, our credit was already ruined. We had accrued close to $100k in debt most of it in high interest revolving accounts. We avoided it for years. Using credit cards to pay medical debt and when those were maxed out we would pay one account from another until we had no money left.

Community Financial Counselor

When filling out the form from the financial counselor we finally realized how bleak it really was. After reviewing our numbers the counselor sighed audibly and said ‘have you thought about bankruptcy?’.

Most people think that bankruptcy needs to absolutely be avoided. However, when you are dealing with the constant stress of creative bill paying, it can be a relief. It is most likely that your credit has already taken a hit, as it had for us, so we were not worried about anything additional.

The bankruptcy process can be intimidating. Although if you do your research it is really not a difficult situation and the alternatives are probably much worse. When you have finally decided there is no other choice, it is hard to know where to begin.

I had the obvious questions:

Can they take my car?
Can they take my house?
Will I be sued?
Will they garnish my wages?
How much does it really cost?
Should I file Chapter 7 or Chapter 13?
How long does the process take?

The website for the district court that oversees the bankruptcies can be a good resource to start with. In South Carolina, where we filed the court’s website has an FAQ that can get you some information. You can even file without an attorney but the forms can be complicated and it definitely helps to consult with one that specializes in bankruptcies.

Recommended to Hire Counsel

We had received a list of lawyers from the counselor and proceeded to call around to ask them what they charge. While court fees are set, lawyers can charge a varying rate based on the complexities of your case.

Our case was fairly simple. We had the house, a truck, and then all the revolving debt. We did not have any real assets to worry about. The majority of our accounts was consumer debt. Even though the debt was the result of medical accounts and payments, it was all now on our credit cards.

Most of the lawyers charged approximately the same amount. With court fees, the costs were estimated to be $2,500. Some of the lawyers required that amount upfront, others wanted an initial payment and then would charge installments.

We found one that asked for $800 upfront for a retainer to file the case and pay the court costs and the rest in installments. They explained to us to stop paying on all of the credit card debt but if we wanted to keep the home and the truck to keep paying on those. The amount we would save would cover the initial fees and we could file within a month.

As I mentioned in another post, a friend loaned us the $800 to file and we gave him the money within a week. Once we retained a lawyer all our bill collectors were informed and any further contact would go through them. This was an immediate relief to us.

You Will Fill Out Lots of Paperwork

We had to fill out a lot of paperwork. We listed all of our debts, all of our assets, and any other account that we had. We listed all property that would be considered under the exemptions. Our home, my truck, my motorcycle, clothing, electronics, jewelry, most of which amounted to small amounts.

We also completed a ‘means test’. This measures our ability to payback our debts. The creditors can use this if they want to pursue any assets that can be used to repay.

At one point I even asked my lawyer if they could take my Xbox, something I bought myself for extremely cheap while working at Staples. The lawyer laughed at that one. While this may be considered a luxury to someone who doesn’t have enough money to pay medical bills, this helped my anxiety.

We settled on a Chapter 7 filing. This would discharge all our debts through the court as opposed to Chapter 13 that requires some debts to be repeated. Another key difference is if you file Chapter 13 and cannot repay you can file Chapter 7 on the remaining debts. Filing Chapter 7 you cannot refile any type of bankruptcy for eight years.

Once we filed the necessary paperwork it stopped any debt collectors from contacting us. Any new phone call we would refer to our attorney. This was quite a relief from the endless calls we were receiving.

Pre-filing Credit Counseling Course

The state also requires a pre-filing credit counseling course. The course was taken online and consisted of ways to avoid bankruptcy in the future. With the paperwork filled out our lawyer did the rest. Within a month he had filed in the Bankruptcy Court and a hearing was set.

At that point we just had to wait for our hearing. The hearing was scheduled several months in advance and was in the bankruptcy court in downtown Charleston. At one point, prior to our hearing, we did receive additional paperwork for a restructuring for our truck.

The paperwork wanted us to establish a new loan, but under better terms than the original. The bank reduced the amount on our loan to what the truck was currently worth and lowered our monthly payment. Since I wanted to keep the truck and this still allowed us to save money we agreed. This is also known as a reaffirmation agreement.

The Day of the Hearing

The day of our hearing, which is also known as a 341 meeting, or a meeting of creditors, we went down to the court house and met our lawyer. We arrived about an hour early because we were both nervous. Our lawyer met us and explained that he would do most of the talking and the judge would only ask us a few questions.

We sat through a few hearings before ours and listened to the judge and filers. Most were much more complex than ours and a few even ended up being a bit heated between the filers and the judge.

When our time came we stepped up to the front table with our lawyer. The judge asked him a few questions, asked us a few questions, and then asked if any creditors were present. When no one came forward he discharged our case and we were on our way. The whole event took no more than an hour with maybe five minutes in front of the judge.

A financial management course is also required within 45 days of the hearing otherwise the case will not be discharged. We finished that the weekend after our hearing.

About three months later we received the discharge copy in the mail from our attorney. We also worked out an installment plan that would have us paying off the attorney fees within a year.

Your Credit Will Tank – Initially

Initially, after the discharge, our credit took a bit of a hit. But within a few months, it started back up again. Since we were not in any position to purchase anything I was not worried about the drop.

About a year after our discharge my motorcycled was totaled when someone drove into it while parked in the community college parking lot. We received a settlement for the cost of the bike and was able to secure a loan on a new vehicle without having to pay a fortune in interest. The dealership even mentioned that he had seen worse credit after bankruptcy.

Last year, the bankruptcy finally dropped off our credit report, ten years from the date that we filed.