Bankruptcy Advice

As Washington bails out banks and struggles to help homeowners, millions of average Americans are doing their own difficult math, sitting at the kitchen table, crunching numbers, and wondering about an option that creates fear and confusion for many.

The numbers alone configure confusion: Chapter 7, 11, or 13?

Add in the many misconceptions about bankruptcy: is it really protection, a new start, or does it dog you forever. It can be mind boggling for a consumer already down on her luck.

So we picked three common questions from our viewers. Karen from Streamwood is first.

Karen says "I'm in credit card debt of $36,000. My house is in mitigation. I haven't had a job in 10 months. I'm scared. I don't know what to do. Should I file for bankruptcy or not?"

Bankruptcy attorney Joanne Coshonis says "in this case, her option would probably be a wage-earner Chapter 13 case which is reorganization for the consumer. It seems to me that she is interested in keeping her home. The Chapter 13 is based on whatever income there is in the family and you go through a process where you calculate your current monthly income and that would include your income and all of your expenses and what remains can be distributed to your unsecured creditors."

The second question comes from Doug in Plainfield.

Doug says "I am currently unemployed. I am wondering whether bankruptcy is an option for me at this point. If so, which chapter should I file and how will it effect my credit for the future?"

Joanne Coshonis says "being currently unemployed with no source of income, Chapter 7 would be more appropriate unless he has family contributions or any other source of income. If he is not willing to surrender his home and would like to maintain current mortgage payments he has to have some source of income or some financial help to pay for that current mortgage payment."

Many calls and emails expressed fear about what comes after bankruptcy.

An unemployed Chicago woman writes: "I hear conflicting opinions about bankruptcy. Some say it's survivable and others say it's the absolute worst thing you can do and should avoid it at all costs."

Joanne Coshonis says "it's definitely survivable and they can come out with a fresh start. What they really need to do is determine what their needs are and distinguish them from what they want. And then pair down what they live on and seek some relief from the debt they've accumulated over the past whatever years."

Another major misconception out there, and mistake many consumers make is that they dip into their retirement funds while desperate to pay off mounting bills. Bankruptcy experts say retirement funds can not be seized in a bankruptcy proceeding, and should be left untouched for their original purpose retirement years.