I can’t tell you how many times I reassure clients that they will not lose their home or vehicle by filing bankruptcy.
Under the Bankruptcy Code a Debtor (term used for the person filing bankruptcy) is able to protect a certain level of assets. Under Massachusetts law, if a person has filed a homestead they are able to protect up to $500,000 of equity in their home. Equity is defined as the value of your home minus any mortgages on the property. For example, if your home is worth $300,000 and you have a $200,000.00 mortgage on your home; you would have $100,000 of equity which would be protected under the homestead law so long as this is your principal residence. The same principal applied to your vehicle and other assets.
2. THE BANKRUPTCY LAWS CHANGED, AND NO ONE QUALIFIES FOR BANKRUPTCY
It is true that a major overhaul of the Bankruptcy Code occurred in October of 2005, but millions of people have filed bankruptcy since the changes went into effect. Part of the Bankruptcy Reform Act was to install income limits based upon your family size in the state and county in which you reside in.
It is my job to look at your income and make an assessment as to what Chapter of Bankruptcy you qualify for and what option is best for you based upon your unique set of circumstances.
Another major change to the Bankruptcy laws was that if a Debtor has disposable income (money left over at the end of the month), they would be disqualified from filing a Chapter 7 Bankruptcy and would have to file a Chapter 13 where their creditors will receive a percentage of what is owed to them. Despite these changes many of my clients still qualify for Chapter 7 and are able to wipe out their debt.
3. I WILL NEVER BE ABLE TO GET CREDIT AGAIN
This is not true! Most often clients are able to qualify for a mortgage 2 to 4 years after the date of their bankruptcy discharge, depending on the mortgage lender. Many clients have applied for and received credit cards within a few months of their bankruptcy discharge.
Although a Chapter 7 Bankruptcy is on your credit report for 10 years and a Chapter 13 is on there for 7 years; many of my clients are still able to receive car loans and credit card offers. This may be partially because they will not be entitled to file a Chapter 7 again and receive a discharge for 8 years after the filing of their bankruptcy.
The Bankruptcy Discharge is the legal document which legally relieves the Debtor from paying most of their debts and prevents creditors from collecting the monies owed to them.
What most of my clients do not realize is that their credit is already terrible and by filing bankruptcy their credit will take a hit because of the filing, but will start to rebound quite quickly because they no longer have any debt.
4. TAXES CAN NEVER BE DISCHARGED
This also is incorrect. Certain taxes can be discharged in bankruptcy. For example personal income taxes that are older than 3 years may be dischargeable. Fiduciary taxes can never be discharged. This is a very complex area of the law, therefore it is best to consult a lawyer to determine whether you are able to discharge your tax debt.
5. I WILL LOSE MY JOB IF I FILE FOR BANKRUPTCY
It is against the law to terminate an employee because they filed bankruptcy. If an employee can prove that their employer fired them solely because of a bankruptcy filing they could sue their employer.
6. I DON'T HAVE TO INCLUDE ALL OF MY DEBT
This is not true and in fact is against the law One major principal in the Bankruptcy Code is that all similarly situated creditors should be treated in the same manner. Therefore if you owe Home Depot, Citi Bank and your mother money, they should all receive the same treatment. Therefore if you file bankruptcy you are to list all of your debts.
Many clients believe they need to retain a credit card to rebuild their credit. Most recently, I have seen credit card companies conducting routine credit checks and when they see that one of their card holders has filed they will close the account regardless of whether they received notice in the bankruptcy. In order to get the fresh start in the bankruptcy, it is vital and required by the Bankruptcy Code that you list all of your debt. You will see that within a few months of filing bankruptcy you will start to get credit card offers in the mail.
7. EVERYONE IS GOING TO KNOW I FILED BANKRUPTCY
While the list of who has filed for bankruptcy is public record, it does not get published in the local paper. Yes, your mail carrier will potentially know you filed bankruptcy as they will see the court notices being delivered to your mailbox, but no one else will find out unless you tell them or they scour the public records.
Many clients feel embarrassed about having to file, and I understand that is a normal emotion to be feeling, but there shouldn’t be any shame in having to file. Most often people to not realize how many individuals around them have had to file.