A 2013 Guide to Declaring Bankruptcy When You Owe Banks More than You Could Ever Hope to Pay Back

In 2013, the process of declaring bankruptcy is a lot different than it used to be. New Jersey bankruptcy attorney, John W. Hargrave, notes that while the bankruptcy laws haven’t changed, the people declaring bankruptcy have.

“These are good, solid people who lost income or owned a business that didn’t recover quickly enough,” says Hargrave, of John Hargrave and Associates. If you count yourself among this group, read on about how to declare bankruptcy.

Declaring Bankruptcy

Hargrave explains that most people declaring bankruptcy in 2013 as “people who just got hit with some kind of financial knockout punch during the recession.” Job loss, divorce or separation, student loan debt and homes that are underwater are the most common causes for bankruptcy that Hargrave sees in his office.

“They get pushed to the edge by an inability to meet their expenses and the inability to pay people that they want to pay,” continues Hargrave.

So when is it time to talk to a professional about whether or not you should declare bankruptcy? Hargrave recommends that you start by asking hard questions about your income. “Begin with the household budget — what money do [you] have coming in and what are [your] obligations? Is there any money left to pay debt?,” he says, adding that “nine out of ten times, there isn’t.”

How Does Bankruptcy Work?

Hargrave says that the bankruptcy process begins before you even enter a bankruptcy lawyer’s office.

“Something I require people to do before they come in to see me is to write the numbers down,” he says. “For most people that’s a struggle, but also a revelation.” He urges people to take a hard look at these numbers, see if things are getting better or worse and contacting a professional if the latter is the case.

Often times “people wait too long to contact a bankruptcy lawyer,” Hargrave points, adding that those with large piles of debt are often “racked with guilt and shame.” This leads them to make financially unsound decisions, like borrowing more money to pay off old debts and borrowing money from their pension plans.

Once you’ve decided to declare bankruptcy, you have to document your income as well as your debts, using bills, pay stubs and tax forms.

Benefits of Declaring Bankruptcy

“One of the biggest benefits of bankruptcy is the automatic stay, which works against virtually all creditors,” Hargrave explains. The automatic stay is just that — automatic.

You’ll stop getting harassing phone calls and mail. In the event that a creditor calls you, you simply tell them that you’ve filed, give them your case number and tell them that your lawyer is handling everything now. Even if a lawsuit is already pending against you, it will be immediately stopped. This will take a lot of the pressure off.

Hargrave describes debt as a “corrosive force on families and relationships.” The good news about bankruptcy is that it slows or stops this corrosive force on the debtor’s personal life.

Is Declaring Bankruptcy Right For You?

While it’s not the right choice for everyone, Hargrave believes that there is an unnecessary stigma against bankruptcy.

“Bankruptcy is a game changer,” he remarks, “It’s about getting the past behind you so that you can start again. It’s a fresh start, a do-over, a chance to begin again.”

Particularly in the wake of the Great Recession, there are scores of people who took on debt while they weren’t working that they simply cannot pay back now that they are back in the workforce.

Hargrave makes the distinction between those who abuse the benefits of declaring bankruptcy versus those who truly need it. “Sometimes it’s just a question of putting food on the table or gas in the car and paying your credit card bill for the month,” he notes.

Bankruptcy isn’t necessarily a sign of fiscal irresponsibility — indeed, it is the exact opposite for millions of financially-strapped Americans.