Which is better? It is January 1, 2000, and 2 people (let's call them Jack and Jill) each have 10 credit cards maxed out to the tune of about $ 70,000, and neither can pay. (never mind how they got to this point - that is not the issue here). Jack files for bankrupcy on Jan 2, 2000. Jill simply stops paying the bills and throws them in the trash. She changes her telephone to an "unlisted" number as to not get too many collection calls during dinner. July 1, 2000 Jacks bankrupcy is final. July 1, 2000 all of Jill's accounts have now been charged off. Jack has to wait 10 years (until July 1, 2010) before the bankrupcy notation on his credit report is gone. Jill only has to wait 7 years (until July 1, 2007) until the last negative charge off message on her credit report is gone. Conclusion: On July 1, 2007 Jill has a clean credit report from which to start fresh, while Jack has 3 more years of "bad credit status" to go. Other than the SMALL chance a creditor would sue Jill (my position is that they won't because it costs money to sue, and if they do sue, you can offer to settle for a few pennies on the dollar), it seems to me that Jill has it MUCH bettor off than Jack. Therefore, unless you have specific circumstances that necessitate you filing (example: if you hold a Federal job, you can be fired for "not paying your just debts" - Jill could be fired, Jack ,by filing bankruptcy, could not be fired), you are MUCH better off to just let the debts go bad (3 years better off, to be precise). Am I wrong or am I missing something here?
RE: Bankrupcy vs. Letting Debt Fred-- I don't think you are missing anything except you are making an assumption that the card companies won't sue. I know of several instances where debtors filed bankruptcy after being sued on credit card debt. This is not at all unusual and not a good thing since most card agreements provide that the creditor may recover attorney's fees if the suit is successful.
RE: Bankrupcy vs. Letting Debt It really depends on whether its a Chapter 7 or Chapter 13 BK. Chapter 7 is full absolution and Chapter 13 involves paying back some of the money owed through the BK trustee. The CRAs will only report a Ch 13 for 7 yrs even though they are entitled to for 10 years, for precisely the reason you cited. The creditors are being paid some money, hence the lesser time of being reported. Most creditors will not sue unless it's a large amount of money, because the debtor always has the option of going to BK when a suit is filed, but before a judgement is rendered. Then they will be out the money owed and the money for filing the suit with virtually no chance to recoup it. They'd get nothing. If the write it to P&L they can at least get something out of it by factoring it to a collection agency. The more recent the debt, the higher the factor.
RE: Bankrupcy vs. Letting Debt Seventy-thousand dollars in consumer debt is a good reason to go chapter 7. BK does not have the long-term stigma it once had. After six months you can get a car loan, within one year you can have enough credit cards to use "in an emergency". And, 24 months after your BK is discharged you can obtain a new mortgage from FannieMae, FHA, or VA. So, BK looks better in the long and short term than going underground to avoid the inevitable. You can only file BK once every seven years, so obtaining new credit is less risky to a creditor who knows you can't file on him. Find a good BK attorney and start over.
RE: Bankrupcy vs. Letting Debt In your scenerio, the difference is Jack will walk away with peace of mind KNOWING he no longer legally owes the money. Jill will have to worry for years (don't tell me she won't dread answering the phone on "unavailable" calls and answering the door hoping its not a process server). Is all that worth three years of extra bad credit? I think so! Besides, BK is designed to provide a "fresh start," and getting credit is often times easier after a BK. You can FORGET any type of loan with $70k of unpaid charge-off's without a BK discharge. Also, I know of several unsecured creditors that will sue, especially on large balances.
RE: Bankrupcy vs. Letting Debt "Also, I know of several unsecured creditors that will sue, especially on large balances." I concur with those types of balances the odds are 100% that at least one of the creditors will sue. And in the eventuality they are unable to contact Jill they'll just get a summary judgement which will mean at least 10 years of bad credit and she'll still have to pay it off!
