About the Episode
Have you ever wondered what it actually means to declare bankruptcy? Find out what bankruptcy entails and the different types of bankruptcy in this episode of Making it Count. With the help of Annette Boyd, the Vice President of Collections at Addition Financial and Juan Velasco, a Member Experience & Sales Specialist at Addition Financial, you’ll learn how the bankruptcy process works and what you can do to start your financial recovery today.
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03:55
Will asks Question 1: “What does it mean to declare bankruptcy?”
Annette responds: “Bankruptcy means that you can no longer afford to pay your debts. If you find yourself facing this situation, the first thing you need to do is set up a consultation with a bankruptcy attorney. A bankruptcy attorney will guide you through all the rules and regulations of bankruptcy so you can go through the filing process without any pain.”
Learn more: The Millennial Playbook to Paying off Debt & Saving for the Future
04:45
Cristina asks Question 2: “Can you talk to us about the most common types of bankruptcy?”
Annette responds: “The most common types of bankruptcy are Chapter 7 and Chapter 13. People who file for Chapter 7 bankruptcy have lots of unsecured debt with no assets left. Their main goal is to discharge all of their debts by filing for a Chapter 7 bankruptcy. On the other hand, Chapter 13 means that you have some assets and income which means you have the ability to repay your debts.”
“There are many steps you must go through before deciding which chapter you're going to file. When you first sit down with your attorney, you will need to list all of your secured and unsecured debt. You will list all of your assets, which could be anything from boats, cars, houses, expensive jewelry, stocks, bonds, and believe it or not, your 401k.”
06:15
Cristina asks a follow-up question: “What is the difference between secured debt and unsecured debt?”
Annette responds: “Unsecured debt includes your credit cards, your line of credit, and your signature loans and vacation loans. Secured debt is where you don’t have any collateral securing your debt. Examples of secured debt include your house, car, motorcycle and RV.”
Learn more: What is the quickest way to eliminate my debt?
06:45
Will asks a follow-up question: “Will the financial institution take away my car to offset their losses if I'm unable to pay my auto loan?”
Annette responds: “That’s not exactly true when it comes to bankruptcy. It depends on the type of bankruptcy you file. When you declare a Chapter 7 bankruptcy, you will be required to take a means test to determine your ability to repay your debt. After listing all your assets, the attorney will submit it to the trustee. At that point, you've got about 60 days until your first creditors meeting where we ask questions about which possessions you want to keep. For possessions you want to keep, you must file a reaffirmation agreement with the creditor and the trustee who will oversee the approval process.”
“In Chapter 13 bankruptcy, you will also list all your assets and decide what you’re going to keep. This document will go to the trustee and your creditors will be notified. In the next creditors meeting, the trustee decides and the debtor confirms. If the plans get approved then we will start adjusting everything with our loans at the credit union. Most cases have a three to five year plan with debtors getting discharged at the end of five years.”
Learn more: How to Refinance a Car Loan in 5 Steps
10:30
Cristina asks another follow-up question: “What is a trustee? How do you get a trustee and are they assigned to you?”
Annette responds: “In a bankruptcy court, you have the judges and the trustees. Trustees are the case managers of your bankruptcies. They gather all the money you pay to make sure it gets distributed correctly amongst your debt.”
“As for getting a trustee, it depends on which district you live in. There are three districts in the state of Florida. There's the Northern, middle and the Southern district. I want to say there are two or three trustees in the middle district of Florida. They essentially get assigned to you.”
11:45
Will asks Question 3: “Can you be foreclosed on or have your car repossessed after being approved for Chapter 7 bankruptcy?”
Annette responds: “Once your bankruptcy gets filed, there is an automatic stay. An automatic stay means that once the bankruptcy is filed, the creditors can’t touch you. They must stop all collection efforts. Let’s say we have a car out for repossession and its 90 days past due. If the member files for Chapter 7 bankruptcy, we have to immediately stop all collection efforts.”
“If the member wants to keep their car, we have to form a reaffirmation agreement. We will try to work with the member’s attorney to get them to surrender the car, but if they stop all communication with us, this is where we get what's called a relief. We file a motion for a relief of stay, which means that if the trustee grants that motion, we can go out and pick up the car.”
14:35
Cristina asks a follow-up question: “What's the advantage of going through the bankruptcy route instead of calling all of your creditors to make a plan with them individually?”
Annette responds: “You should always try to work with your creditors before filing for bankruptcy. However, for someone who has massive debt, they usually have no choice but to file for bankruptcy.”
Learn more: Best Ways to Pay Off Credit Card Debt in 5 Steps
16:50
Will asks Question 4: “How does bankruptcy affect someone’s ability to get credit moving forward?”
Juan responds: “Once the bankruptcy is discharged, you will have a clean slate assuming you filed for a Chapter 7 bankruptcy. It’s not difficult to rebuild your credit history especially if you’ve reaffirmed some of your debt. However, it is important to note that your bankruptcy will be reported to the credit bureaus. We strongly encourage reapplying for unsecured credit after you’ve acquired at least 12 months of good payment history.”
Learn more: A Critical Look at How to Pay Off Credit Card Debt Fast
18:55
Cristina asks Question 5: “Juan, we talked about the differences between filing bankruptcy and going to each of your creditors. What steps can someone take to help manage their debt before filing for bankruptcy?”
Juan responds: “It depends how deep you are in debt. The first step is to become aware of your finances. If most of your income is being compromised by loans, then the next step is to consolidate your debt. A consolidation loan will combine your debt into a single payment, fixed-term, fixed-rate loan. This can help you pay off the loan at a faster rate with lower interest rates.”
Learn more: 5 Steps to Managing Credit Card Debt When You're Young
22:26
Will asks a follow-up question: “What should people be cautious of as they’re repaying their debt with consolidation loans?”
Juan responds: “You have to be very careful with your credit card usage. As an Addition Financial member, you can monitor your credit score using Credit Wise on our website and mobile banking app. It’s important to have your credit utilization under 30% and to pay your credit card payments on time to protect your score during the bankruptcy process. However, if your credit score prevents you from qualifying for unsecured debt, you can get a home equity loan or a vehicle title loan to help pay off your debt.”
Learn more: The Risks and Rewards of Credit Card Debt Consolidation
25:40
Cristina asks Question 6: “What are some happy endings that you’ve encountered on the job? Have you ever met someone who’s gone through a catastrophic event that led to bankruptcy?”
Juan responds: “I want to point out that bankruptcy isn’t always related to a catastrophic event. Some people just retire and all of a sudden they’re on a fixed income and they don’t have the salary they used to have. It isn’t a catastrophic event to go into retirement, but it can be if you can’t pay back your debt.”
“In terms of success stories, I’ve met one member who was recently discharged from bankruptcy and he was concerned about rebuilding his credit. I helped him set up a plan to manage his debt and even set up a phone call for next year to check on his progress”
Annette also responds: “When someone causes a credit union a loss, we can’t offer them any services or loans. However, I have met people who were able to bounce back after bankruptcy and were able to purchase homes and cars after their financial losses. So there is life after bankruptcy.”
Learn more: How to Safeguard Your Credit Score Against Credit Card Debt
29:30
Will asks Quick Question 1: “What kind of debt might not be eligible to be included in the bankruptcy?”
Annette responds: “If you owe the IRS, then you’re going to continue to owe the IRS. Other forms of ineligible debt include student loans, child support, alimony, and debt from running fraudulent schemes.”
33:00
Will asks Quick Question 2: “How much does bankruptcy cost?”
Annette responds: “It depends on how much debt you have, who your attorney is, if you file a Chapter 7 or a Chapter 13 bankruptcy, and how many assets you have. It can range from a small price to thousands of dollars.”
33:40
Cristina asks Quick Question 3: “Does filing for bankruptcy stop collection calls?”
Annette responds: “It absolutely does, and it relates to the automatic stay I was referring to. When we get a notification of a member filing for bankruptcy, they will no longer receive statements and notices from our credit union. They will get locked out of their online banking and all of their debt payments will go through a trustee instead.”
34:26
Will asks Quick Question 4: “What’s the most surprising or funny misconception you’ve heard about bankruptcy or financial recovery after bankruptcy?”
Juan responds: “Many people think bankruptcy is the end. I remember one of our members saying ‘I know I can't pay for any of my stuff, but I'm not filing for bankruptcy,’ out of pure pride. I think that's funny because at some point your pride has to give up and move forward.”
Learn more: 6 Myths About Credit Card Debt Forgiveness
35:05
Cristina asks Quick Question 5: “Can people still buy a house if they’ve experienced bankruptcy in the past?”
Juan responds: “Yes! If this is your case, make sure to check in with the different financial institutions you're applying to because every institution has different parameters for bankruptcy. Typically, there are some limitations to how long you have to wait before you can apply for a mortgage, but it's usually not that lengthy.”
Learn more: Average Expenses & Costs of Owning a Home for 2021
35:50
Will asks Quick Question 6: “Many people believe their personal possessions will be sold off to pay their debts if they filed for bankruptcy. Is this entirely true?”
Annette responds: “No that is not entirely true, but there is a possibility depending on how much we owe and what you have in assets.”
40:40
In this episode, Cristina and Will shared the 9 Legitimate Strategies to Rebuild Your Credit Score blog to help our listeners recover from financial situations such as bankruptcy. This resource will help you manage debt and improve your credit score over time.
Posted on Sep 30, 2021
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