Chapter 7 Bankruptcy in Louisiana

Each state has it's own specific laws about personal and business bankruptcy. I live in Louisiana, so I'll be specifically referring to Louisiana law when I talk about exempt and non-exempt assets, income rules, and other relevant issues. If you live in another state, be sure to consult with a bankruptcy attorney in that state because the laws will be different.

I've been working for a little over 2 years now to try and pay off my debts, and I made a little progress. I paid about $14,000 over the last 13 months and managed to pay off 8 debts for a little over $5300. The other $8700 went to interest, fees, and pro rata payments to debt collectors I couldn't begin to afford to pay substantially.

My total debt balance as of June 2008 was $250,654 excluding the first mortgage on my house. When I became unable to make the minimum payments on my debts in May 2006, my balance was $156,163.

That's a 61% and $94,491 increase in just 2 years. My June 2008 balance is after $5300 of debt was paid in full, and $8700 of payments were made on the delinquent accounts.

At first I seemed to be making headway, and paying off those first few debts was a terrific feeling. But as time progressed, the interest rates skyrocketed and my debts were sold multiple times to other collectors. Each time a debt was sold, the interest rate usually went up and a new fee of a few thousand dollars was tacked onto the balance. Some of my debts have been sold 4 times now.

Even though I was making about $1000 worth of payments each month, I wasn't reducing my total debt balance. It was growing faster than I could pay it. In May 2008, I decided to figure out how much I would have to pay each month to pay the debts off in 5 years. It turns out I would have to pay nearly $5000 per month for 5 years. That would just be debt payments. It would not include living expenses.

I barely earn a total of $4,000 per month right now. I'm working hard to increase that, but growth in pay comes slower than compound interest increases.

I have been sued 6 times so there are 6 legal judgments against me. One of the collectors decided to take the judgment back to court and attempt to get a writ of seizure for my bank account. A writ of seizure basically allows somebody to take what the judge orders they can take and you get 15 days prior notice. I had to retain an attorney and start bankruptcy proceedings to stop the creditor from seizing the money we needed to live on.

After going through the calculations and seeing how much I would have to pay each month to get out of debt, I had already decided I was in too deep a hole to climb out on my own. The writ of seizure only served to push me to start proceedings faster than I had planned to.

I was finally able to finish paying my attorney's fee for the proceeding this month.

I turned my 2008 tax information over to my CPA Friday, March 20, 2009. I'm currently working on the huge packet of information required to file.

I'm also calling all creditors for current balances and audits of accounts that don't seem to be right.

Two words: failed business.

That's the short story. The whole story starts in mid-2004 with me listening to bad advice and following it. I initially borrowed $25,000 on a business line of credit. That qualified me for a business Visa card. Then I qualified for a business MasterCard, so I signed up.

I had a little over $100,000 in personal credit that I never used. I have no idea why I had that many accounts. I guess it was because I was eligible for the credit and I signed up whenever it was offered, usually to get some kind of store discount or frequent flier miles or reward points or something. I never used those either.

I also had $30,000 in home equity lines of credit available to me "for emergencies". Bad idea in hind site.

I used about $15,000 up front to pay for initial advertising, my business and professional license fees, a subscription for a turn-key business system and all the training that went with it, business cards and stationary, set-up of a website (very pricey, I wish I had known then what I know now), and some living expenses for the first couple of months while I set everything up and got my licenses in order.

Then I started seeing clients for money, and the revenue started with a drip and turned to a pretty good trickle by the end of 2004. In January 2005 the trickle became a small stream and the stream got a little bigger each month. I borrowed substantially less each month and was able to pay the bills down and meet our living expenses. Things were moving along okay in the right direction. By June 2005 I had probably borrowed about $45,000. It wasn't a problem because I was making enough in revenue to pay the payments and meet living expenses, and stop borrowing completely.

Then, on August 29, 2005, Hurricane Katrina devastated the Central Gulf Coast of Alabama, Mississippi and Louisiana; and New Orleans. Hurricane Rita followed a couple of days short of 4 weeks later.

Life was thrown into chaos and 41% of my potential client base was displaced.

I didn't have any clients for 8 months and we had to live on something, so I hit the credit I had available, reasonably confident I would be in a better financial position in a year or so. I got a part-time job as a math and science tutor in 2006 (my degree is in chemistry) and I attended every meeting FEMA, the SBA, and our state and federal congressional representatives and senators held that was supposed to help us recover our businesses.

It turned out that there were no grants and almost no loans. I didn't qualify for an SBA loan because I didn't have enough revenue coming in! Duh...That's why I needed help. They provided a little free help with marketing and I used every bit of that help to drum up some clients.

I was about to shut the business down in May 2006, but then I got a bunch of clients and revenue jumped until Nov 2006. Then it dropped off again until January 2007 and jumped again until June 2007. After June 2007, business dropped dramatically again and hasn't ever recovered. I decided that if I didn't get any clients in January 2008 that I was closing in February 2008, and that's what happened. I should have closed in July of 2007, but hind site is always 20/20.

By then I had robbed Peter to pay Paul, and in November 2005, the minimum payments on credit cards went up from 0.2%-0.5% to 2%-4% of the outstanding balance. They raised the minimum payments just when I was least able to handle them. That's when I got behind and I haven't ever been able to catch everything up, even though I was able to pay off 8 debts.

Here's the most ironic thing: it was a fee-only financial planning business.

I'm still a math/science tutor and it pays pretty well. When it doesn't pay enough I deliver pizzas to fill in the gaps.