This month on our Women of Wisdom Monthly Chat, we featured Senior Credit Counselor, Gabriella Barthlow of Senior Credit Counselor of Alpha Advisory Group, to discuss “The Truth About Bankruptcy”. Gabriella has helped scores of people restore their credit and help them achieve their financial goals. She is a Consumer Law Advocate with over 20 years of experience in mortgage banking, sales, human resources, and financial and consumer law.
I saw Mrs. Barthlow present at the 2012 Money Smart Week Kickoff Breakfast in April. What impressed me most was her no nonsense, candid, and transparent approach. On our WOW Chat this month, Mrs. Barthlow shared her wisdom. Read some excerpts below.
Q. What are the two types of consumer bankruptcy codes?
A. In everyday English, Chapter 7 is a liquidation. When you file Chapter 7, everything that you are legally able to put into the bankruptcy is wiped out or discharged. The debt is gone.
Chapter 13, also called a “wage earner” bankruptcy, is reorganization. It is for regular wage earners who cannot repay their debt, for whatever reason. The court will use a formula to determine that you have the ability to pay back some of your debt. They will put a payment plan in place according to your income. The repayment time is a three or five year plan.
The laws change in August of 2005 was to capture the wage earners and keep them from filing a Chapter 7 and to force them into a Chapter 13. It is not as easy to file chapter 7 bankruptcy today.
Q. Why do people file bankruptcy?
A. The primary reason prior to the economic downturn was medical. Reasons can vary from disability, business failure, or job loss. It depends on the situation.
Q. When should you file?
A. There is no clear cut rule on when to file. Each person’s situation is different. As a credit counselor, I like to say it is a decision of last resort. Do everything you can to keep from gettting to that point. In most cases, a person should have at least $50,000 worth of debt. I suggest filing when you are at the brink of financial destruction and no income coming in. You have to continue to live or you will be out on the streets. Pride and shame causes most people to delay filing. Bankruptcy frees you so that you can get some debt off of your back, restructure, continue to live, and get some sleep at night! It is a law that is available to help you.
Q. How much does it cost?
A. There are some basic court costs ranging from $250 – $325 for filing. The overall cost to file bankruptcy will depend on several factors, including the complexity of the case, personal finances, and the attorney fees. Generally, bankruptcy costs can range from $1100 – $2200.
Q. Is it hard to file bankruptcy?
A. No, it is relatively simple, if you have the funds. Sometimes it may be best to file while the funds are still available.
Q. How does it affect your credit?
A. You will take a big hit on your FICO score and a bankruptcy stays on your credit report for 10 years from the date of discharge.
Q. Can you include student loans and IRS back taxes in the bankruptcy?
A. No! Work out what you can with the IRS to avoid liens and garnishments. Also child support arrears are not included in bankruptcy.
Q. What are some suggestions to rebuild your credit after bankruptcy?
A. Don’t rush out right away and get new credit. You are eligible, but the interest rate will be too high. It takes two or three years to rebuild your credit wisely. You can go from a low 500 FICO score to over 700 with time and patience. Here are some tips: Go to a cash only lifestyle. Get a secured line of credit. Maintain two or three open credit lines only. Pay your bills on time. Use only 30% of available balance.
Q. Any final words?
A. Have some people in your life that can help you, bring over some groceries, if necessary. Keep your heart open and help other people. They may look good on the outside, but you may not know what they are going through.
Wise words! Bankruptcy is not the final answer to your life; it’s only a chapter. With every ending there is a beginning. I am a true believe that when life gives you lemons, make lemonade! Bankruptcy is a viable options to begin again.
To contact Gabriella Barthlow, find her on www.alphaadvisorygroup.com.
Samirian Hill is the Founder and President of BudgetWise Financial Solutions, LLC, and creator of Women of Wisdom Circle Chat (#WOWChat). She is a financial educator, blogger, and freelance writer. Samirian enjoys golfing, reading, and cooking.