Bankruptcy: On The Edge

WHAT BANKRUPTCY DOESN’T COVER

  • Federal, state and local taxes.
  • Child support and alimony.
  • Fines, such as outstanding traffic tickets.
  • Outstanding loans for important items such as cars, appliances and furniture.
  • Government-backed student loans.
  • Debts from lawsuits for intentional injury.
  • Money owed for illegal debts, such as bounced checks.
  • Debt from open-ended credit greater than $1,000 obtained within 60 days of filing for bankruptcy.
  • Debts from fraud or misrepresentation (for example, giving false information on a credit application).
    Source: Bill Free American
  • DEBT COUNSELING RESOURCES

    Myvesta
    www.myvesta.com
    (301) 762-5270

    Green Path Debt Solutions
    www.debthelpnow
    (800) 550-1961

    Bill Free American Credit Counselors
    www.getbillfree.com
    (800) 245-5373

    Trucker Keith DeHaven will probably remember Dec. 11 for the rest of his life. For the past decade, the Pleasant City, Ohio, native has marked that day each year, waiting for the 10th anniversary that will erase what happened on Dec. 11, 1992. On that day, his finances devastated by a faulty engine rebuild, DeHaven declared Chapter 13 bankruptcy.

    “Filing for bankruptcy is very demoralizing,” he says. “You lose all self-respect and all confidence. It’s a tough road to come back.”

    It’s also a long road. Whether you file Chapter 13 or the more severe Chapter 7 bankruptcy, the two main options available to owner-operators, the damage will take years to repair. The bankruptcy will be on your credit record for seven to 10 years. You will have trouble financing a car or getting an unsecured credit card. If you get into financial trouble again, you won’t be able to file for years. You may have trouble finding a job. And your days as an owner-operator could be over for years, if not forever.

    There are advantages to filing for bankruptcy, but in almost every case they do not outweigh the consequences, say credit counselors and truckers who have been through the process.

    “Bankruptcy is not a business strategy,” says Todd Amen, a principal of American Truck Business Services. “It’s pretty rare that filing bankruptcy is a good option.” That’s because putting your credit back together after bankruptcy often takes longer than paying off your debts. And if you are able to pay off your debt, lenders will be more willing to overlook your credit problems than a bankruptcy. Lenders often have no choice but to deny credit if a bankruptcy is on your credit report.

    SIGNS OF FAILURE

    Should you file for bankruptcy? Jackie Vickers, an owner-operator from Donaldsonville, Ga., was asking the same question last year. His debt was high after a divorce, he had made bad business decisions, and payments on his truck, which had mechanical problems, were too high. He filed for bankruptcy in September.

    “I made some bad calls,” Vickers admits. “It’s been a struggle.”

    Vickers is typical of bankruptcy filers nationwide in that he had experienced high debt and a divorce. The other common factor leading to bankruptcy is the loss of medical insurance, according to a U.S. government survey. For owner-operators, overwhelming truck payments, unpredictable maintenance expenses and uncovered medical bills make them that much more susceptible to bankruptcy.

    Key signs of imminent financial distress include:

  • Missing truck payments.
  • Depleting savings account.
  • Paying minimums on credit cards.
  • Getting phone calls from creditors.
  • Using credit cards for cash advances.
  • If one of these signs shows up in your business, contact your creditors. Most are willing to work with debtors on delaying or extending payments for two to six months.

    Creditors don’t want to repossess your truck, says Jeff Amen, brother and partner of Todd Amen. “They want to know why you are in your situation,” he says. “If you have a business plan going forward, they’re going to be very flexible. In the case of catastrophic mechanical problems, lenders will often let a trucker skip payments, as long as he has a reasonable way to catch up.”

    Other creditors are also willing to work with you, but many truckers ignore the problem until a repo man shows up for the truck or the bank begins foreclosure on their house. Even then, it is often not too late to work out a deal.

    SHOULD I?

    If you can’t work your way out of your problems, you may have to consider bankruptcy. Ask yourself:

  • Is your truck about to be repossessed?
  • Is the bank foreclosing on your house?
  • Are your creditors harassing you?
  • Do you owe steep medical bills?
  • Do you have any judgments against you?
  • Are you having tax problems?
  • If you answer yes to more than one of those questions, it’s probably time to consider your options. Keith DeHaven made his decision when he couldn’t meet his bills and creditors were harassing his family. He had just started driving for Dart in 1991 and decided to invest $15,000 in his old International. He chose a local mechanic to rebuild the engine to save money. But 80,000 miles later the engine blew. With no warranty, DeHaven was stuck with a bill he couldn’t pay and a truck that couldn’t earn money.

    “That’s what sent me over the edge,” he says. DeHaven was able to lease a truck from his new carrier and get back on the road in a few weeks. But the bills were stacking up and his creditors began a barrage of phone calls. DeHaven called them back and explained the situation, though he couldn’t tell them when he would pay them.

    “It was simple for me to be out on the road where they couldn’t talk to me,” he says. “But my family was at home.”

    DeHaven eventually filed for Chapter 13 bankruptcy, in which debt is reorganized by the court and then much of it must be repaid. The other kind that’s common for individuals is Chapter 7. In it, most unsecured debts and some secure debts are eliminated, but assets, like your truck and maybe even your house, can be sold to cover those debts. Depending on state laws, you generally get to keep those things that meet basic needs, such as a car. The court will determine if you get to keep your truck, but if you do, you will probably still have to pay it off. Generally, Chapter 7 filers have little income and cannot afford to repay the debt.

    The difference between Chapter 7 and Chapter 13 is largely related to the amount of debt retired and the assets you get to keep. Chapter 13 is often preferred by truckers because they can usually keep their trucks. The stigma of filing for bankruptcy is also less, truckers say, because most of the debts are repaid.

    “That’s why I filed Chapter 13,” DeHaven says. “l didn’t want to run out on my debt.”

    Jackie Vickers chose Chapter 13 for similar reasons. “My tractor loan was only three years, and I was able to extend it another three,” he says. “It’s been a struggle. But my debts are being repaid.”

    Bankruptcy filing isn’t cheap. Depending on your state, filing can cost hundreds of dollars just for the court costs. Bankruptcy lawyers may charge in the thousands.

    OTHER CHOICES

    Bankruptcy filers often ignore options such as credit counseling. A credit counseling organization provides private counseling and will work to get creditors off your back. The organization will contact creditors on your behalf and make arrangements to drop interest charges, waive late fees and, where possible, reduce overall debt.

    “Sometimes bankruptcy is appropriate,” says John Waskin, executive director of Bill Free American Credit Counselors. “But credit counseling puts you into a better position.”

    Credit counseling will help you repay your debts and teach you how to avoid getting back into a bad situation again. It’s cheaper than bankruptcy, and your credit report won’t be tarnished by a bankruptcy.

    Dozens of credit counseling organizations exist. Waskin recommends choosing a non-profit organization that asks for a donation rather than a fee. The donation is generally tax-deductible, as with Waskin’s organization. If the fee or donation is more than $50 a month, you’re probably paying too much. If in doubt, call the Better Business Bureau and check the organization’s history.

    CONSEQUENCES

    Immediately after filing Chapter 13, DeHaven and his wife limited their credit use to their one remaining credit card and paid it off in full every month to start their new credit record. After 10 years, his bankruptcy disappeared from his credit record in December.

    Since he filed, DeHaven has twice spent the night in hospital emergency rooms recovering from stress attacks. Even though his debts were paid off in three years, the bankruptcy kept him and his wife from borrowing to buy a car or cosigning for his kids when they wanted a car loan. He couldn’t get a credit card until 1999.

    Other filers have trouble with potential employers, who often look at credit reports. “They think if you went bankrupt, you’re not trustworthy and not financially responsible,” Waskin says. “You won’t have any job where you’re handling cash.”

    Other obstacles remain for life. You’ll be asked about bankruptcy if you: apply for a job paying over $20,000 that requires security clearance or bonding; apply for life insurance with a face value of more than $50,000; or apply for a mortgage or other loan of more than $50,000.

    But most importantly, filing for bankruptcy makes it very difficult to be an owner-operator. DeHaven was able to lease a truck from Dart, but he hasn’t been able to get financing. Vickers says he’ll be an owner-operator at least until his current truck dies. “If and when I decide if I ever want another truck, I’ll do things a little different,” he says.

    DeHaven was thinking about buying a new truck in 2003. He’s looking forward to going into a bank with his good credit and getting a loan for a Peterbilt or a Kenworth. It’s something he’s been dreaming about for 10 years.

    “Looking back, I wouldn’t have filed,” DeHaven says. “I would never do it again. I would have done anything to pay off my debts. It’s too hard to overcome.”


    TWO ROUTES TO STARTING OVER

    CHAPTER 7
    Filed by people with little or no income. Your belongings are sold and proceeds are distributed to creditors.
    Advantages

  • After assets are distributed, unpaid balances due are erased or discharged.
  • Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are yours, not the creditors’ or bankruptcy court’s.
  • There is no minimum amount of debt required to file.
  • Your case is often over in three to six months, enabling you to get out from under the burden of debt quicker.
  • Disadvantages

  • Non-exempt property, which may include your truck, is sold by the trustee.
  • Some debts, like mortgage liens, survive and can be collected after your case is closed.
  • If you are facing a house foreclosure, the bank’s efforts may only be stalled.
  • Any co-signors of a loan can be stuck with your debt unless they file for similar protection.
  • CHAPTER 13
    For people who have an income and can pay off their debts according to a court-arranged schedule.
    Advantages

  • You keep most or all of your property, including your truck.
  • You have more time to repay debts.
  • Debts can be reduced.
  • You are protected against collection efforts and wage garnishment.
  • Co-signers are immune from creditors’ efforts as long as your plan provides for full payment.
  • You have protection against foreclosure on your home.
  • Disadvantages

  • You pay your debts out of disposable income, tying up cash over the repayment period.
  • Some debts will survive after your bankruptcy is closed and you must continue paying.
  • Legal fees are higher because the filing is more complex.
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