How do I declare bankruptcy?
April 9, 2005 4:51 PM   Subscribe

How do I declare bankruptcy in the US? What's the process? Is it something I can do without paying a lawyer? Is it going to stress me out?

Due to an unfortunate accident and not having insurance, I've managed to rack up at least $17,000 in medical bills that I'll never, ever be able to pay. I can ignore the hospital bills and hope they write them off, but I have private clinics that are sending me bills for large sums, and I doubt they'll be willing to eat the cost. So I understand that bankruptcy is the only way that I'll be able to keep the debt collection agencies from suing me and garnishing my wages. I don't really have any assets, and my bank account never manages to have more than a few hundred dollars in it at any point in time. I'm young and ignorant about personal finances, so I don't have any savings, either.

What's the process for this? Where do I even start? How fucked will my future finances be after it goes through?
posted by cmonkey to Work & Money (10 answers total)
You need to see an attorney. What I don't understand is why you'd screw up your credit for seven years for just $17,000. Are you unemployed? Have you thought about trying to get public assistance for the medical bill?
posted by MegoSteve at 5:12 PM on April 9, 2005

you can do it yourself if you want. just file the papers at your city hall. There's a fee.
posted by amberglow at 5:29 PM on April 9, 2005

A bankruptcy is what you will do if you are sure you cannot pay the bills, especially if they are racking up interest. The effect it has on your credit history is beside the point as your scores are headed for the toilet anyway. Fixing the problem correctly should be your biggest objective.

1. Check your alternatives first. If you anticipate getting a good job soon and being able to pay the debt, work with your creditors and start paying the debt. Also you may want to call the creditors and see if they will cut down the bill. The hospital where my son was born cut our bill from $16000 to $6500 after we negotiated with them. They give the insurance companies big discounts anyway, so you do have leeway to do this. Not sure about the individual doctors, and if it's gone into collection I'm sure they'll balk. But you sure don't want to file bankruptcy if it's possible to pay your creditors and drive down the debt substantially in a few years.

2. If your income is low enough, which is what it sounds, you will be a good candidate for a Chapter 7 which gives you a clean slate immediately, however if you get into trouble later you will be unable to refile for some number of years.

3. If you ignore the bills, you will likely get judgements filed against you and I think this is worse than a bankruptcy. Judgements can be re-filed indefinitely against you, putting you in perpetual debt, whereas the bankruptcy will gradually slide off your credit history after awhile.

4. Plus for bankruptcy: Your credit scores will take the biggest hit when you file (FICOs should drop to the low/mid 500s), then begin gradually climbing. If you don't file, your debt will gradually drag your scores down, down, down into the 500s and the long-term impact will be worse.

5. The net effect of a bankruptcy is not as bad as people would have you think if you intend to avoid the trappings of consumerist society and WANT to use the opportunity as a clean slate. Yes, it will be harder to rent and an employer may scrutinize your bankruptcy, but landlords and employers tend to find medical debt forgivable. If your life is in stasis and you don't move or change jobs, there may be no effect on your life. Also due to lending competition in recent years it's gotten a lot easier for those who have filed bankruptcy to re-establish credit and get mortgages after only a couple of years.

6. You CAN do it without a lawyer, but this is not a good idea unless you are willing to thoroughly research what you are doing (beyond what the Internet and books can provide). You could get shafted at the trustee meeting if you don't know what you are doing. The trustee represents your creditors. Your attorney does all the worrying: he/she will know who the trustees are and can anticipate any possible problems, and can tell if your paperwork is in order.

7. A good resource: CreditBoards is probably the biggest one.
posted by rolypolyman at 5:36 PM on April 9, 2005

Also you asked about the process. In a nutshell it is like this:

1. You file bankruptcy with the district court. Your credit scores plunge pretty quickly after this.

2. A couple of months after filing you will attend a scheduled public meeting with the trustee (341 or Meeting of Creditors), which is basically where you answer some questions under oath. In a few cases a creditor may attend and cause trouble for you (which is where it's good to have your attorney). If the trustee is ok with it and your papers are in order, you're generally home free, since the court tends to act on their recommendation. In some states you may have to attend a financial management class.

3. A few months later your district court confirms the bankruptcy, which you likely won't attend. The only snag at this point is if the trustee uncovers abuse, you haven't responded to their requests for any supporting documentation, or the judge has some other similar reason. Otherwise this event either discharges the bankruptcy (Ch 7) in which case you're done, or confirms the payment plan (Ch 13) in which case you pay the trustee installments over the prescribed plan period and get your discharge at the end.
posted by rolypolyman at 6:32 PM on April 9, 2005

I did it about four years ago in California after bearing loads of punishing ex-wife-incurred debt for eight years. I do agree about the lawyer -- they do the forms, and make sure you're aboveboard in the eyes of the law. They also advise you as to whether or not, or how much, you can write off. There was just a change in federal bankruptcy law -- not sure when it goes into effect -- so legal advice might be especially good right now. The huge amounts involved in mergency medical bills being a current cause of much bankruptcy was one of the complaints Democrats had about the legislation, but it passed anyway. My lawyer, after reviewing my stuff, told me, "Everyone deserves a second chance." That helped.

They can also appear in court with you. I did have to answer questions from the judge, in my case, in front of a room packed full of probably 40 strangers, a bit like the initial day of jury duty only you're having to tell the judge why the law should allow you to default on your debts. They can also tell you what it's going to be like at the court date -- you may have creditors' representatives there trying to cut deals with you, for instance...

Emotionally, though, realizing that I had governmental protection from an onerous burden (I would call it usury, at 22%+) , and then suddenly just not paying the bills (for 2-3 months -- weird to have the creditors go nuts on you and essentially avoid them; when you file they back off), has freed me to live a much better, happier life. I think that's the point, ultimately.

I tried the Credit Counselor route but the burden was too difficult for me at the time even though it was reduced.
posted by rleamon at 6:57 PM on April 9, 2005

If you do decide to declare bankruptcy, be aware that harsh new regulations take effect on October 1, 2005, when the provisions of the new bankruptcy law are effective. This article from Bankrate has some good information, though I believe Bankrate's coverage is slanted towards the creditor.

Also see Big Changes in Bankruptcy Law Coming in Fall 2005.
posted by mlis at 8:14 PM on April 9, 2005

Please check with a lawyer, keep Oct. 1 in mind (re: newer, tighter regulations), and truly make sure that there's no other option (i.e. don't just assume since you can't see a way to pay it right now that there's nothing else you can do -- do some legwork to see definitively if any other options apply). Bankruptcy over $17,000 just seems a little extreme to me (though I understand how overwhelming that amount of debt must feel like), considering how long it can take to build your credit back.

Try to negotiate with the hospital/clinic first (do not just ignore the bills -- unpleasant as it may be, call back and at least indicate your willingness to work out something to try to keep things from going into collection in the meantime, and some hospitals even have people who's job it is to work with the uninsured in cases just like this), and/or investigate (legitimate) credit counselors in your area who might be able to do so on your behalf.

Case in point: When a friend of mine broke his neck several years ago, he had some basic insurance through the record label his band was on, but still wound up owing something like $80,000 or $100,000 of the roughly half million it took to save his life. He was upfront with the surgeons about his situation (guitarist in indie band = very few dollars in pocket), and they set up a reasonable payment plan and intervened with the hospital on his behalf to reduce many other charges. I have no idea if he's still making payments after all these years, but the point is he was able to make other arrangements besides bankruptcy for a much higher amount of debt than you're facing. Just something to keep in mind.
posted by scody at 9:02 PM on April 9, 2005

When I first saw this question, I thought it said $170,000, so I steered clear. Now I've come back to it.. I'd say work out a way to repay it. $17,000 is not, in the grand scheme of things, a collossal sum, although it certainly sounds crazy just to get an arm patched up, but that's the US medical system. I paid back a debt twice as large as this while earning very little. I had to sell my car to help it out, but hey, it had to be done (especially since the loan was due to the car, ha!)
posted by wackybrit at 3:53 AM on April 10, 2005

If $17k is the first bill you've received after the medical care, your first line of defence should definitely be to negotiate that down. I'm not a financial advisor, but that's what Suze Orman always says.
posted by fionab at 2:58 PM on April 10, 2005

Do *not* make bankruptcy your first option. Most clinics want you to pay more than they want you to go broke. Bankruptcy is like being in financial prison for 7 years, and $17k, though it seems like it, is not an insurmountable amount of money.

I'd work harder on negotiating your bill and working out a payment plan.
posted by anildash at 10:42 PM on April 10, 2005

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