5 Lessons Learned From Filing Bankruptcy

This article is from Debt Kid (Scott Mitchell), who after day trading away over a quarter million dollars found himself in some serious debt. He’s been blogging since 2007 about his journey back to zero.

In 2007, after trying a debt management plan, and selling most of my possessions on ebay, I hit my breaking point. I couldn’t afford to keep servicing over 250K in debt. I did something I never thought I would have to do: I filed for Chapter 7 Bankruptcy. Doh! Fast forward to today, and while it was not an easy process to go through, I learned some lessons from the whole ordeal.

Lesson 1: You will feel shame. It’s normal and justified.

I felt terrible about having to file bankruptcy. And rightly so. It’s a big middle finger to people you agreed to pay back. Even to this day I wish I didn’t have to do it, but I really did not have another choice. And that’s what it’s there for, the absolute last resort. To this day I wouldn’t want my friends to know I had to file, but at the same time, 3 years later, it wouldn’t crush me if they knew either.

Lesson 2: You might still get contacted by creditors on accident.

I was at a summer BBQ about 5 months after filing bankruptcy and I got a call from a random number. Since most of the collection calls had ceased, I picked up, “Hello?” “Hi, is this [my name]…I have a document here for you” My heart rate picked up. I hung up and turned off my phone. The next day the lady showed up at my apartment and served me papers for a judgment on a debt that I thought had been discharged in bankruptcy. The lady gave the papers to my employee (I was working out of my house). It was so embarrassing. The debt wasn’t valid, I wrote a letter to the lawyer, and never heard from them again. But still. Just because your bankruptcy got discharged doesn’t mean something might not fall through the cracks. Be prepared for this.

Filing Bankruptcy Getting Rid of DebtLesson 3: Bankruptcy is a fresh start. Don’t mess it up.

Before your bankruptcy gets discharged, you have to complete a financial literacy program. I did mine online. It was pretty basic stuff, how to make a budget, how insurance works, etc. But it reinforced all the changes I had had to make in my life the past year. I knew that I would never again trade stocks. My bankruptcy was my one big do-over, and you don’t really get another one. So I vowed to never again put myself in a situation like that again.

Lesson 4: Filing bankruptcy won’t ruin your life. It will make some things more difficult.

Life isn’t just peaches and cream after your bankruptcy is discharged. There are consequences. Some more painful than others. For me the biggest issue was finding a place to live. Forget any decent traditional apartment complex or any place run by a management company. Even once I had a large deposit to put down, I could not get approved because of my recent bankruptcy. Try craigslist and search for individual owners, be upfront with them about your credit, and see if they will not even run your credit so it won’t ding your score. It doesn’t hurt to ask, and I’ve gotten 3 apartments since my bankruptcy without too many issues using this method.

Filing bankruptcy won’t ruin your life. Anyone who tells you that just can’t think outside the box enough. Yeah, you won’t get approved for a new mortgage anytime soon…but that’s OK! The last thing you need after a bankruptcy is credit again.

Lesson 5: I don’t ever want to file bankruptcy again

My 341 Meeting (Where creditors can show up, and hash it out with the judge and you if they want. None of mine showed, which is normal) was incredibly awkward. Your name is displayed on this fancy LCD screen as you walk into the room, every other person there feels the same way you do, and you could just cut the tension with a knife it’s so thick. I don’t think I made eye-contact with a single person outside the judge and my lawyer the entire time. It’s an experience I never want to have to go through again.

Bottom line: If you get to a point where bankruptcy is your only option, take it, but make sure you never get to that point again.

Have you ever gotten to a point where you thought about or did file for bankruptcy? What lessons did you learn?

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Last Edited: May 8, 2014 @ 2:24 pm

Comments

  1. A very good post. However I must point out an error.

    When you say:
    ” My 341 Meeting (Where creditors can show up, and hash it out with the judge and you…”

    That wasn’t a judge you saw. That was the Chapter 7 trustee. The trustee’s job is to administer the bankruptcy estate and he is just another party to the proceedings. He or she has no adjudicatory powers.

    The vast majority of people who file for Chapter 7 never even see the Judge who adjudicates their case.

  2. Also, don’t forget: bk won’t eliminate student loan debt. Many employers check credit reports these days, and a bk could kill your chances at getting a job with some companies. (An aside: some job applications ask if you have EVER filed bankruptcy; not have you filed in the last 7 years. Something to think about.) In addition, if you own a home and are looking to “walk away” and plan to “surrender” the home in the bankruptcy process, you will most likely get a “Notice to Vacate” in mere weeks after the bk is discharged – not months, like some would have you believe.

  3. @ Weston – Good point. It was the trustee….felt like a judge!

    @ Matt – Very good point. BK isn’t a complete fresh start in terms of debts. I still have about 30K in student loans that I hope to have paid off in the next year or so.

  4. Been there done that DK. I didn’t feel ashamed though. I think it’s because i was caught up in the foreclosure crisis, the stigma was removed. A family friend said the funniest thing to me:

    “I used to feel like a heel when I couldn’t pay my bills on time. Now everyone’s a deadbeat, so it’s no big deal.”

    I’m not trying to make light of bankruptcy. It’s hard. But recovery happens faster than you think. Two years to rebuild your credit and you can get a loan again. Keep building on your credit and you’ll be back to square one in another two years. The biggest take away here: don’t do it again. Learn a lesson from your bankruptcy and secure your future through smart financial management.

  5. Thanks for sharing your story and congratulations on getting through some very difficult times.

    Yes, the shame can be a big issue. But part of the process is that you eventually learn to have some self-compassion .

  6. Nice sharing your story. Bankruptcy can be useful enough in resolving issues.
    I also found this useful article http://freshstartsolutions.com.au/bankruptcy/

  7. Developing
    your debt repayment strategy means deciding in which order you want to attack
    them. You could rank them lowest to highest by balance, highest to lowest by
    interest rate or in order of which you find most annoying.

  8. All of the information listed above is true. I would suggest that to take note all information they shared to us. These could help in the future in case you had plan to apply for bankruptcy.

  9. Very interesting topic about giving tips in filing for bankruptcy. Thanks for sharing this tips on filing for bankruptcy.

  10. Great article. Its so important to deal that matter about filing for bankruptcy. Thanks to this article we get more information about bankruptcy.