Posted on May 22, 2009 at 1:10 pm I have a mountain of credit card debt and am 2 months behind on my mortgage also. Should I just get this over with and file Chapter 7 Bankruptcy now? Should I wait?

Posted on May 22, 2009 at 1:21 pm Hi Sherry- Before you make any final decisions make sure you understand what filing Chapter 7 Bankruptcy would entail. First of all, you may not even qualify to file Chapter 7. In 2005 Congress passed new legislation that required people to pass a "Means Test" to do so. Essentially they look at your income over the past six months and compare that to your state average in that same time frame. If I understand correctly, if your income is higher than that of the state average you cannot file Chapter 7. So, first you would want to determine based off of your income if you think this would even be an option for you. Also, while I understand times are tough, filing Chapter 7 has some serious consequences. Specifically, it stays on your credit report for 10 years and legal records for 20 years. As a result, by filing Chapter 7 you will impair your ability in the near future to get credit as lenders will view you as a risk. I would suggest trying to catch up on the mortgage first since that is your greatest asset. Not to mention the fact that by falling behind on a mortgage puts you at risk of a foreclosure. Once you do that (catch up), if you can, you may be able to start managing your unsecured debts with more success. Of course, it also depends on how much you owe.

Posted on May 22, 2009 at 2:53 pm The Debtmaster makes some really good points here. One thing to keep in mind as well- you should never skip your mortgage payment to make a credit card payment instead. Part of finding a solution to get your finances under control is to prioritize your obligations. In this case, your home (secured debt) should be the highest priority, well above any credit card debt (unsecured debt) that you may be having trouble with. You don't have any property securing the credit card debt so there is more room for repayment negotiations down the line, assuming you can catch back up and remain current on your mortgage payments.

Posted on May 23, 2009 at 5:57 am To correct DebtMaster - not everyone is required to pass the "Means Test" to file Chapter 7.  You're only required to pass the means test if your income is higher than the average for similarly sized households in your state.  For example:  if you have a family of four and you live in California, you won't have to pass the means test unless your income exceeds the median income for households of that size in California, which happens to be about  $74,000 as of 2006. 

Posted on June 15, 2009 at 2:39 pm Sherry- you can always fill out a form on DestroyDebt.Com for a free consultation. At this point if you are truly considering bankruptcy it really can't hurt to see what alternatives may be available to you. As the individuals mentioned above, filing bankruptcy carries serious credit implications, nevermind a lot of stress, anxiety and embarassment that many people have associated with the whole bankruptcy process.

Posted on June 25, 2009 at 7:48 am Thank you everyone for all of your points. I really feel like I am aware now as to when to file Chapter 7 (and when not to!). I was actually able to catch up on my mortgage last month which is great, too! Anyway I still need a solution for these credit cards. In order to catch up on the house payments I fell behind on the cards (I had no choice!). Anyone have any suggestions? I owe roughly $28 thousand dollars on 4 different cards.

Posted on June 25, 2009 at 12:31 pm If you have fallen behind on your credit cards your interest rates will have gone up significantly (if they weren't already really high), so even if you catch back up you would have to pay very high monthly payments to actually pay down the principle amount of debt that you owe. Or, since you are already behind, you may want to consider settling your debts. Negotiations for settlements can really only take place on past due accounts, and since this is already the situation you are facing it may be your best option as a bankruptcy alternative. You can fill out a form on DestroyDebt.Com for a free consultation or to get matched up with a qualified provider. Of course, feel free to ask us any questions you have in regards to the process of debt settlement.

Posted on June 30, 2009 at 2:36 pm  

Posted on June 30, 2009 at 7:28 pm You can also review the other threads that appear in the bankruptcy forum or fill out a form on DestroyDebt.Com for a free consultation.

Posted on June 30, 2009 at 10:58 pm I agree with what everybody's said  but I think that you should only file bankruptcy, Chapter 7 or 13, when you need the automatic stay provision. Since you did not mention getting any creditor/collection agency calls or even an impending foreclosure order...do try debt settlement.