How it works against you and how to prevent it

For many people, times are so tough that they can’t keep up with their debts. Bankruptcy (the legal procedure intended to give a fresh start to people) may be the only option. It was designed as a last option for those who experience debilitating or life altering events or for people facing poor circumstances that are beyond their control and cannot pay their bills.

Regardless of which type of bankruptcy is selected, many people fail to realize that this is a serious step and should only be taken as a last resort if there are no other options available.

Three types of bankruptcy are available.

• Chapter 13 or "reorganization" allows you to keep certain property (such as a house or car). You may then have three to five years to pay off your debts. You must have unsecured debts of less than $250,000 and secured debts of less than $750,000 to be eligible for Chapter 13 bankruptcy. The court will appoint a trustee to supervise your repayments and to provide the court and other parties with information about your finances.
• Chapter 7 is often known as "straight bankruptcy." It involves the liquidation of all assets (except any that may be exempt in your state, such as your home, car, clothing, household appliances and furnishings, life insurance, pensions, work-related tools and household furnishings). The rest of your property can be sold by a court-appointed official or turned over to your creditors. A straightforward Chapter 7 proceeding usually takes four to six months. You can file for Chapter 7 only once every six years, and a notice of the filing will usually remain on your credit report for at least 10 years.
• Chapter 11 bankruptcy is generally used to reorganize a business, although individuals may be eligible. This type of bankruptcy is designed to allow a business to continue operating while repaying creditors through a court-approved plan.

All three types of bankruptcy may get rid of unsecured debts (those where creditors have no rights to specific property) and stop foreclosures, repossessions, garnishment of wages, utility service cancellations and activities of debt collectors against you. Chapter 7 and 13 bankruptcies provide exemptions that allow you to keep certain assets, though those exemption amounts vary greatly from state to state.

Bankruptcy cannot clean up a bad credit record and will be part of your record for up to 10 years. Many people no longer find it a social stigma to go through bankruptcy. But, you may find it difficult or impossible to get a mortgage or credit card while your bankruptcy appears on your credit report. Certain debts cannot be forgiven by bankruptcy proceeding, such as taxes, alimony, child support, student loans and some property settlements. Debts that result from fraud, willful or malicious injury, certain fines or penalties and claims incurred from driving under the influence of alcohol or drugs also cannot be discharged by bankruptcy.

Laws forbid discrimination against people who have declared bankruptcy. You cannot be denied a job, be denied or evicted from public housing, or be denied a driver's license just because you filed for bankruptcy.

Although bankruptcy can relieve the pressures of overwhelming debt by providing a fresh start, it should always be seen as a last resort, after all other attempts to solve a financial crisis fail.

Many bankruptcies can be avoided by practicing good money management.

• Avoid impulse spending
• Don't use a credit card unless you have the cash to pay it off.
• Tear up credit card offers you receive in the mail
• Stick to a realistic budget
• Don't buy more house than you can comfortably afford
• Make sure you're adequately covered by insurance (medical, homeowners, auto)
• Don't make speculative or high-risk investments
• Don't incur joint debt with others who have questionable financial habits.

If you do find yourself behind on your bills, call your creditors before you get in too deep. It's also a great idea to discuss your situation with a credit counselor to see determine whether you really need to file bankruptcy or whether an agreement can be reached with your creditors.

Like most creditors, Coastal may be willing to work with you if circumstances (job loss, divorce, illness, etc.) have made it temporarily difficult for you to meet your financial obligations. Some creditors may offer a temporary reduction in your payment, a waiver of late fees or penalties, skipping several payments now and increasing future payments to make up for it, or skipping several payments and adding them to the end of the loan.

Coastal is ALWAYS pleased to offer our members FREE financial counseling from Accel. Feel free to use this highly reputable service to determine practical ways to manage your debt and determine the best ways to negotiate with creditors.