If I had known that I would be out of work for two years and underemployed (working 20 hours a month) for six months, I would have filed for a Chapter 7 bankruptcy sooner and save myself some money.
Eight months after I was laid off from my tech job on Friday the 13th in February 2009, the credit card companies jacked up the interest rates on my three credit cards from 15% to 30% before the new credit card rules went into effect to limit such arbitrary increases. I could either pay the new interest rates or lock in the old interest rates of 16% by closing the accounts. Due to a quirk in the new credit card rules to help consumers pay down their debt balance, closing the accounts meant my minimum payments tripled from what they were before. I couldn’t afford to pay either the new interest rates before or the tripled minimum payments after. I went from paying $500 a month to $50 a month to cover my credit card bills. Eight months later I received my first notice from an attorney that one of my credit cards was deliquent.
A few days after my birthday in August 2010, I went to a bankruptcy attorney in downtown San Jose. I had at that time about $30,000 USD in credit card debt, which $10,000 USD came from the accumulated fees of paying less than what I owe. If I hadn’t been laid off and continued to work, all my credit card debt would have been paid off. Unfortunately, I had no choice but to exercise my constitutional right to file for bankruptcy to escape this overwhelming debt I was unable to pay. The attorney told me that I had a straight forward Chapter 7 bankruptcy, where I had no significant assets to pay off my debts and all my debts would be fully discharged so I can be debt free. The next four months I made payments on the attorney and filing fees ($1,299 USD). That was the easy part.
The next four months after that was pure hell as I gathered all the documents required for the bankruptcy petition. The major sticking point with the paperwork was that I had a small business as being a short story writer. If I had simply reported what little writing income I had on the Schedule C under my own name when filing taxes, the paperwork burden would have been significantly less. Since I had a business checking account opened under a fictitious business name, I had to determine the value of my copyrights and provide a profit and loss statement for 2011. These issues I have never considered before. I ended up valuing my copyrights for $375 USD (150,000 words written over five years) at 1/4-cent per word based on a recent short story contract that I signed, and providing a break-even profit and loss statement where I hope to make enough money from writing to cover my fixed expenses. Since everything I owned fell way below the minimum monetary thresholds, it really didn’t matter anyway.
Although I was under the protection of a bankruptcy attorney, the credit card companies sold the debts that I owe them to collection agencies that could care less. The one thing I learned about this side of the financial industry, debt collectors don’t like being treated the same way they treat people and backed off when people fought back. I once called a debt collector five times in a row for 15 minutes until they acknowledged that I had a bankruptcy attorney and to take my phone number off the autodialer. Filed consumer complaints against several collection agencies that were already under investigation to take a hint and leave me alone. One debt was sold to three different collection agencies before the last one found a note in the file that I had a bankruptcy attorney, which meant that the debt was worthless. I was mailing a dozen letters a month to assert my rights under the state and federal Fair Debt Collection Practices Act.
Finally, the bankruptcy petitioned was filed with the federal court in downtown San Jose. A month later I got a court date for the trustee hearing. The hardest part of attending the trustee hearing two months later was getting through post-9/11 security screening. The x-ray machines being down didn’t surprise me. I had to unload everything from my pockets into a wooden box, drink from the water bottle that I brought with me to prove that the water was drinkable, and walk through the metal detector. Fortunately my shoes didn’t have any metal in them and I didn’t have to take them off to walk through the metal detector again. The hearing was held in a large conference room with three dozen red chairs in back and a long table in front. I was fascinated by the slice of humanity that I witnessed in the hearing room.
The majority of the cases were split between two law firms with a representative from each one. Only one couple was there who were representing themselves without an attorney. Although you only pay a $299 filing fee with the court if you do it yourself, it’s not recommended. The bankruptcy process is a grueling process. Paying for an attorney to guide you through the process is worth the expense. Most of the Chapter 13 cases were homeowners trying to prevent the bank from foreclosing on their underwater homes (i.e., a million-dollar home was appraised at $800,000 USD) due to being unemployed and/or medical expenses. The only creditor who showed up for the hearing were a retired couple trying to get $10,000 USD in back rent from the DIY couple, where the trustee ordered a hearing before a judge. One older couple who had previously filed for bankruptcy three times before spoke only Spanish and the trustee put a translator on the speakerphone. Chapter 7 cases like mine were done in five minutes flat as the trustee swore the oath, asked a half-dozen questions and asked if any creditors were in attendance.
Two months later and 11 months after I first saw the bankruptcy attorney, I got my bankruptcy discharge notice in the mail a few weeks ago. Except for a $1,600 tax bill to the IRS that I’m making payments on, I’m now out of bad debt. I’ve been working two tech jobs for the last two months to pay my bills and rebuild my savings reserve (half in cash and half in silver). The bankruptcy won’t disappear from my credit record for ten years. However, when cash is king, your credit score doesn’t matter. Like the Great Depression taught my father the value of cash being king, the new Great Depression taught me the same thing.