Common Fears and Myths About Bankruptcy
People often have fears and misconceptions about the bankruptcy process and the impact that filing bankruptcy will have on them. Some of the most common are addressed below. If you are considering bankruptcy, the best way to have your questions answered is to speak with a skilled and experienced bankruptcy attorney.
While the many rules governing bankruptcy may seem confusing, a competent and experienced bankruptcy attorney can advise you on the best alternatives available for your situation.
For most people, the bankruptcy process will be reasonably straight forward. In more complex bankruptcy cases, a skilled attorney can help you avoid pitfalls that a lesser attorney might not see, saving you the expense and stress of costly litigation.
While filing for bankruptcy is never fun, many comment that they would have filed earlier if they had known how much the bankruptcy process was going to benefit them.
This is perhaps the most destructive of all of the myths about bankruptcy.
Studies show that a significant majority of bankruptcies are caused by job loss, medical debt from severe illness, or the financial stress from divorce. In fact, in this country bankruptcies are more likely the result of stagnant wages and an unhealthy economy than poor financial management. Nevertheless, many delay filing bankruptcy because they see it as an admission of failure or a character flaw.
If you’re struggling with debt don’t delay in finding a competent and understanding bankruptcy attorney with whom you can discuss your options.
Most of the property that most of us own is, by law, “exempt” from the claims of our creditors and cannot be taken from us. There are dollar limits, but for most people all of the equity in their home, all of their household goods, their car and their retirement savings are completely exempt. Only a small minority of people who file bankruptcy have to surrender any assets.
While a skilled and experienced bankruptcy attorney can often find ways to shield assets, property that isn’t protected by an exemption and luxury goods that are completely paid off can be sold with the proceeds applied to the debt.
A bankruptcy discharge will eliminate all personal liability on most of the following types of debt:
- personal loans,
- utility bills,
- credit card charges,
- medical bills,
- and back rent.
However, debt from child support and alimony payments cannot be discharged under any circumstances. Similarly, student loan debt and most tax debts generally cannot be discharged in bankruptcy.
And even though your personal liability on secured debts like car loans and mortgages can be discharged in bankruptcy, if you want to keep the secured property you will generally be required to pay what is owed to the secured creditor.
When you file bankruptcy you are required to list all your property and all your debts with no exceptions. Failure to do so is always a serious mistake, and when there is reason to believe that the omission was intentional it can even result in criminal prosecution. Full disclosure of all property and all debts is part of the bargain everyone who files for bankruptcy protection makes.
This is perhaps the most common fear people have about bankruptcy, and it is simply not true.
In fact, at the point when a person is in need of filing bankruptcy, in most cases their credit score has already been negatively impacted. Depending on the situation, filing bankruptcy may actually improve a person’s credit report.
It is possible to rebuild your credit after filing bankruptcy. Although a bankruptcy can stay on your credit report and will limit your access to credit for up to 10 years from the date of filing, you may receive credit card offers within a few months after your bankruptcy is concluded. While these will be higher interest cards with a low limit, used properly they can help you rebuild your credit score following a bankruptcy. Most people find that their credit score has increased into the “good” or even “excellent” range as early as two years after their case is discharged.
Since most mortgage lenders and insurers require that you wait a minimum of two years after discharge before you apply, it is important to focus on re-establishing good credit during the waiting period.
Not true. While there are certain restrictions based on the timing and the type of bankruptcy you’ve already filed, you are absolutely permitted to file bankruptcy more than once should you find it necessary.
A person who is granted a discharge in a Chapter 7 bankruptcy case cannot be granted a discharge in a subsequent Chapter 7 case filed within eight years of the prior case. After eight years, the prior Chapter 7 bankruptcy will have no impact.
A person who is granted a discharge in a Chapter 12 or Chapter 13 case generally cannot be granted a discharge in a subsequent Chapter 7 case filed within six years of the prior case. After six years the prior Chapter 12 or Chapter 13 bankruptcy will have no impact.
A person who is granted a discharge in a Chapter 7, Chapter 11 or Chapter 12 bankruptcy case cannot be granted a discharge in a subsequent Chapter 13 case filed within four years of the prior case. After four years the prior Chapter 7, Chapter 11 or Chapter 12 bankruptcy will have no impact.
And a person who is granted a discharge in a Chapter 13 case cannot be granted a discharge in a subsequent Chapter 13 case filed within two years of the prior case. After two years the prior Chapter 13 bankruptcy will have no impact
If you find yourself needing to file bankruptcy again and your prior case was dismissed, it is crucial to contact a knowledgeable bankruptcy attorney because it may be necessary to make certain filings in order to insure that you receive all of the protections in your new bankruptcy case to which you are entitled. Kidwell Law Office has the knowledge and experience to guide you through this process.
Wrong! Incurring debts that you do not intend to repay is fraud. Not only can creditors in these situations seek to have your debts to them excepted from discharge but this type of conduct could result in even more serious consequences, including the denial of any bankruptcy discharge.
If you are considering filing bankruptcy, do not make unnecessary purchases before filing as this will only worsen your financial situation.
When a person decides that they need to file for bankruptcy protection it is not required that their spouse do the same, and a joint filing should never simply be assumed. The debts and assets of both individuals must be carefully considered to determine whether and when a joint bankruptcy filing is appropriate.
Some bankruptcy attorneys believe this. I disagree, and here’s why: unlike individual debtors, business entities like corporations and LLCs that file bankruptcy under Chapter 7 of the Bankruptcy Code are not even eligible to receive a discharge of debt. For this reason, it is seldom worth the time and expense to put a failing business into a Chapter 7 bankruptcy. There can be exceptions but a Chapter 7 filing by a business entity is seldom a good choice.
Businesses that are struggling financially can reorganize under Chapter 11 of the Bankruptcy Code; business bankruptcies are more complicated and expensive than individual bankruptcies, but there are now options for small businesses that make obtaining Chapter 11 relief easier and less expensive.
Kidwell Law Office does not represent businesses in Chapter 11 filings, but we have strong relationships with firms that do, and will be happy to make referrals to those firms in appropriate cases.