Bankruptcy enables mother to start a new chapter in life

Rachel doesn’t want her last name published because she’s embarrassed that she filed for bankruptcy. “My family taught me all about credit,” she said.

She and her then-husband earned enough income to comfortably pay the mortgage on their Howard County home. But when he began missing time at his sales job because of drug use, she tapped her retirement fund and the kids’ college accounts to pay the bills. Before long, Rachel was putting necessities like groceries on her credit cards. Soon she couldn’t make even the minimum payments on the cards.

The couple, who were separating at the time, went to a credit counselor, who recommended that they file for bankruptcy. After going through the process, Rachel lives in an apartment with her two children and has a clean slate, with all credit card debt forgiven.

“I feel guilty about it and I feel badly,” she said. But she recognizes it was the only solution for her. 

Thanks to the sour economy, bankruptcy lawyers like Melinda Tell and Mark Jordan of Jordan & Tell LLP, a statewide practice that works mostly with individuals and small businesses, are seeing an uptick in business. “People really need it,” said Jordan.

“By the time people come to us, they don’t have any other option,” agreed Tell.

Sitting in their Columbia office, the lawyers explained that there are three main kinds of bankruptcy protection: Chapter 7, Chapter 11 and Chapter 13. (Chapter 12 is for farmers and fishermen, and Chapter 15 is for bankruptcy proceedings involving more than one country.)

Chapter 7, which Rachel used, is basically total liquidation. It’s available to individuals, couples, partnerships and corporations. Chapter 7 basically wipes out debts, though money owed for alimony, child support, taxes and most student loans still must be paid. The process generally takes less than six months. 

Chapter 13 is a potential recourse for people or sole proprietors who have fallen behind in payments but have a chance of getting caught up. It allows people to keep their homes and other assets, and establishes a five-year repayment plan for debt. To qualify, a person must have a stable income with some disposable income. Some debts may still be wiped clean without payment.

Chapter 11 is for businesses. It refers to a reorganization plan accompanied by protection from creditors.

Since bankruptcy laws are federal, filing takes place in federal court. In Maryland, those courts are in Baltimore and Greenbelt. The petitioner must provide extensive documentation of debts, income and expenses. The court appoints a trustee to make sure conditions of the bankruptcy are met and to take control of property the petitioner no longer gets to keep, such as a house. An entity filing for bankruptcy can’t file again for another eight years.

Though bankruptcy can hurt a person’s credit rating, most people, including Rachel, find that the credit card companies soon come knocking again. She is choosing not to use them, though. “I don’t even want to have that there,” she said. She prefers her newfound peace. “I don’t have creditors calling every five minutes,” she said.

Karen Nitkin is a freelance writer based in Ellicott City.