I quickly finished my undergraduate degree before going on to grad school. I loved learning and I loved school. I knew I would never have a problem generating income. What I did not consider was how much the $50,000 in student loan debt would cost me each month for the next thirty years. Or what could happen if life threw me a curve ball.
After finishing grad school I was diagnosed with Crohn’s Disease. Turns out it’s not cheap. Lucky for me, I snagged a job with the Federal Government and had no issues getting health insurance or medical care. The Crohn’s diagnosis was a small blip on my radar as I set out to live life and climb the corporate ladder.
Then I left my federal job.
Since then, I have bounced around from job to job and even went a year without health insurance. Medical debt, unemployment and student loans — that won’t go away even after bankruptcy — have consumed my life. When the wage garnishment letter arrived, I had no choice but to file for bankruptcy. If any of my income were garnished I would not survive month-to-month. This was the curveball I hadn’t anticipated.
Even though deciding to file for bankruptcy was a difficult decision, I am confident that it was the right decision for me, and you might find yourself in the same situation someday. If you do end up filing for bankruptcy, here’s what you should know:
Cross Collateralization Crisis
My car, which is financed through a credit union, will be seized since there is a cross-collateralization clause associated with my auto loan. This means a line of credit was secured by my automobile and the car is on the hook until the line of credit is forgiven. My lawyer indicated we could ask the credit union for an auto exemption, but it was unlikely that they would oblige. Financing a new car is not out of the question after bankruptcy, but I can kiss the 2.9 percent interest rate goodbye.
The Trustee Has All the Power
The difference between chapter 7 and chapter 13 is the way debts are forgiven: under chapter seven debts are discharged whereas under 13, debts are repaid over time. There is a means test in chapter 7 and if too much money has been earned, chapter 13 may be the only option. In my case, I was barely eligible for chapter 7 due to bonus money and a relocation check that I earned this year.
To facilitate a chapter 7 bankruptcy, a trustee administers and facilitates the bankruptcy proceeding. This person serves as the "watchdog" over the process and has the power to sell any of your belongings that aren’t protected under the law.
In my case, the trustee asked lots of personal questions about my income, tax returns and purchases. He may or may not demand that this year’s tax refund be turned over to the court.
Consider All of Your Accounts
If you have decided to file for bankruptcy, make sure you include everyone to whom you currently owe money. Even utilities, landlords and other non-revolving accounts should be listed on your case since any deposits on these accounts are protected as part of your estate.
All accounts listed in your bankruptcy will be notified and given the opportunity to attend your 341 meeting of creditors. My landlord showed up and asked the trustee if she needed to be there. It was awkward. If I had known she would be invited, I would have given her a call and let her know myself — as a courtesy. She just wanted to know if I would continue paying rent on time. If I were behind on rent, however, the lease could have been dissolved under the proceeding and my security deposit would have been returned.
Any accounts listed in your bankruptcy will be protected to the fullest extent of the law. This means your landlord must return your security deposit, your utility company can’t shut your account down and you generally have more safeguards. Accounts not listed in your case will not be protected; debts not listed will not be discharged.
Ready. Set. Improvise.
All in all, filing for bankruptcy was a relatively simple process. The debts forgiven in my bankruptcy will be discharged in the next few months. My credit score will fall. It will take time to rebuild credit and establish favor in the eyes of the credit score gods. The bankruptcy itself will remain on my credit report for the next eight to ten years.
But I could have spent the next ten years trying to dig myself out of debt. With ongoing medical costs from a chronic illness plus a hefty student loan balance, it may have taken a lifetime to establish financial solvency. By filing for bankruptcy, I chose to wipe the slate and start over. It was a tough decision, but it’s not about pride at this point.
What could I have done differently? Everything. Or maybe nothing. While it’s important to plan your future and position yourself for success, when life happens — you improvise.
I am lucky to have secured another vehicle from a family friend — one that I will pay off over a few months. This way, I will own the car and won’t have hefty payment each month.
I have been given access to my expensive medication through a patient assistance program, which means I don’t have to pay any copays.
As far as building a financial future, I have learned how to make smarter money choices. I have learned that I don’t need to buy a latte each day, because these little things add up and prevent me from getting ahead. By making smart money choices, I can put more money into savings and create a safety net if the unexpected happens again.