Book Deals With Debts and Bankruptcy

It is the end of the year, often a time to take stock of your financial situation. The gift-buying sprees are over, and soon the credit card bills will arrive. And income taxes and the rest of your property taxes must be filed in the next few months.

It can be a depressing time, even if you have a steady income and adequate resources to cover all the bills. But imagine how difficult it is if you simply can’t afford to pay your bills this month or next month and you don’t see any light at the end of a dark tunnel?

“If you suddenly find yourself without a job, socked with huge, unexpected medical bills you can’t pay, or simply snowed under by an impossible debt burden, bankruptcy provides a chance for a fresh start and a renewed positive outlook on life.”

Those words appear in the introduction to a new book called “How to File for Bankruptcy” by lawyers Stephen Elias, Albin Renauer and Robin Leonard.

It is a valuable, easy-to-understand workbook about the Chapter 7 or so-called “straight” bankruptcy--a process that allows you to cancel certain debts in exchange for which you surrender some of your property.

The book also has several introductory chapters--before getting to the step-by-step discussion of filling out court forms--that explain the legal and administrative process and help you make a decision about whether filing for bankruptcy is the right choice for you.

The book explains the difference between a Chapter 7 and a Chapter 13 personal bankruptcy and why one might be better than the other, depending upon your personal circumstances. In a Chapter 7 (straight bankruptcy), your non-exempt assets are sold by a bankruptcy trustee and used to pay off your creditors. You are allowed to keep certain exempt assets, such as basic clothing, food, social security, unemployment insurance and other items up to a specific monetary limit. For example, cars valued up to $1,200 are exempt. But if your car is worth more, the bankruptcy trustee can sell it and use the excess to pay off your debts.

In a Chapter 13 proceeding, on the other hand, you discharge your debts over a three- to five-year period by paying off a portion of them, about 70%. It is sometimes called the “wage earner plan” because you use your income as part of a court-supervised payment plan to get back on your feet and satisfy your creditors. (A Chapter 11 bankruptcy is used by corporations to reorganize and repay their debts.)

The lawyer-authors discuss various alternatives to filing for bankruptcy, including negotiating directly with your creditors, using consultants to help design a payment plan, or simply doing nothing because you are “judgment-proof” and don’t have any assets or income worth protecting.

(The authors don’t generally encourage using debt consolidation advisers, but they do favor one non-profit organization, Consumer Credit Counseling Service, as a low-cost, reasonable option to consider.)

Don’t file for bankruptcy just to stop creditor harassment, they warn, because there are existing state and federal laws you can use for that purpose.

Filing for bankruptcy can come in quite handy in some emergency situations, because you get an automatic stay--once you file--that protects you from your creditors. Filing for bankrupty will prevent disconnection of your utilities for failure to pay for at least 20 days, they say. And it will also temporarily stay foreclosure proceedings and evictions, but only temporarily.

Filing for bankruptcy is not a step to be taken lightly.

“If you’re deeply in debt, bankruptcy may seem like a magic wand. But there are drawbacks,” the authors write. The court-supervised process is intrusive. You may be forced to give up property you otherwise might have been able to keep. It could hurt your credit rating, which of course may be pretty low already. And there is an emotional impact--for many people, bankruptcy represents personal failure, not just a legally permissible method to start a new economic life.

But bankruptcy can also be a way to see some light at the end of a financial tunnel filled with unpaid bills. In the words of Elias, Renauer and Leonard, bankruptcy is “based on forgiveness rather than retribution,” and it “keeps families together, reduces suicide and keeps the ranks of the homeless from growing larger.”

“How to File for Bankruptcy” sells for $24.95. (That may seem expensive to someone who can’t afford to pay the rent, and it is, but it is a worthwhile investment.) The book is published by Nolo Press, 950 Parker St., Berkeley, Calif. 94710, and can be ordered by phone--(800) 445-6656.