In case you are considering filing a bankruptcy, we are here to dispel many of the common myths that surround bankruptcies. Did you know that a bankruptcy can actually help you build credit faster than if you paid off a ten-year debt? Not many understand that a bankruptcy is a legal procedure that aims to relief individuals under economic stress. When a debt is discharged in a courtroom, the individual filing for bankruptcy will find a clean start meaning that they have another shot at building a good credit score. People who have filed for bankruptcy, have been able to open a new credit line that has allowed them to re-establish themselves in the world of credit.
If you are seriously considering bankruptcy, you may want to visit the following page: “Considering Bankruptcy?” to learn about the specific chapters that may apply to your circumstances. Not everyone is capable of filing a Chapter 7 or a Chapter 13 which is why you should have a clear understanding of the different types of bankruptcy chapters. If you wish to speak with a bankruptcy attorney, a person that can help analyze your case and provide guidance on the different chapters, you may want to contact the Bankruptcy Attorney at 424-285-5525. We understand the different bankruptcy codes and we can help you choose the right type of chapter that matches your overall economic ambitions.
Due to the number of chapters in Bankruptcy Code, it is easy to misinterpret the bankruptcy chapters. For example, a complete liquidation of assets is an aspect of Chapter 7. Filing for bankruptcy does not necessarily mean you have to liquidate all your assets. In fact, if you wish to maintain your property you may file a bankruptcy through Chapter 13 or Chapter 11. The chapters in bankruptcy are very distinct and it is easy to think that bankruptcy is a two-dimensional procedure. To learn more about the different chapters you are encouraged to do more research and consult with an attorney.
The following section will shine a light on the common myths and misconceptions of Bankruptcy Code. Don’t let a common misconception about bankruptcy keep you from enjoying a clean start.
Common Bankruptcy Myths
People who file for bankruptcies are irresponsible cheats and crooks
Nothing could be farther from the truth than to say that only irresponsible people file for bankruptcy. In fact, filing for bankruptcy is very normal, a total of 779,828 business and non-business entities have a filed a bankruptcy within the last year. People just like you and me may one day find ourselves in a tough economic situation where our only option is to file for bankruptcy. Filing under a bankruptcy chapter is usually a debtor's last option and most individuals sway away from the benefits of a bankruptcy because they think it will give them a bad name. Most people that file for bankruptcy do so after they acknowledge that their debt may never be paid back because it is above their earning capabilities.
Middle and lower class individuals must live in an economy that is constantly changing and creating new problems. What you could afford to pay today, may not be so affordable in the near future. For instance, if you are earning more than enough to live comfortably and pay bills, you may think its a good idea to take out a loan for ‘x’ amount of reasons. However, if you are fired or incapacitated and you are no longer at the same earning potentials, you will have a much more difficult time making payments to your debt while keeping up with the cost of living. In another instance, you may have been in a relationship for a very long time and after a divorce, you end up with a huge portion of the debt that was accumulated through the marriage. If you are a non-working spouse with a substantial amount of debt, you will find it difficult to get back on your feet when you have a huge debt on your back. Circumstances change every day, sometimes we are financially stable and at other times we are in economic distress. The bankruptcy law allows individuals to free themselves from all or partial debt so that they may re-establish themselves in society.
All your debt is discharged
Some individuals may find that the above statement is true. How? First and foremost, we must understand the types of debts that may or may not be discharged. If all you owe is credit card debt, a.k.a dischargeable debt, you will find that all your debt is in fact discharged when you file a Chapter 7 bankruptcy. However, some debt is considered non-dischargeable meaning that it cannot be pardoned or discharged through a bankruptcy. Non-dischargeable debt may include and is not limited to tax debt, student loan debt, child support, and alimony debt. If you owe both dischargeable debt and non-dischargeable debt, you will find that only your dischargeable debt may be cleared through a bankruptcy. When you speak with a bankruptcy attorney, he or she will help you sort out the different types of debts that you have accumulated.
You will lose all of your property
Losing your property or having your property repossessed by a court-appointed trustee, may only occur if and when you choose to file through a Chapter 7 bankruptcy. Chapter 7 “liquidation” allows a court-appointed trustee to repossess any non-exempt property from the debtor. Upon repossession, the trustee will sell off the non-exempt property and will use the proceeds to pay off the creditors. Nevertheless, when you file a Chapter 7 liquidation, you are entitled to keep all exempt property. Exempt property may include your vehicle, clothing, household appliances, pensions, and work essentials such as tools. Keep in mind that every state has different exemption laws that allow debtors to keep certain belongings that do not surpass a certain value.
Certain items cannot be exempt if they are over a certain value. For instance, if you have a 2018 vehicle that vehicle will most likely be worth a good sum of money. In California, if your car value exceeds $4,800, then the car may not be exempt. In addition, a creditor may contest an item from being exempt if the value of the item would satisfy the debt owed. To find out more information on the exempt properties in California, you may visit the following link: http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=703.140.&lawCode=CCP
It is better to pay off your debt than to file for bankruptcy
For some, it is true that paying off their debt will be better than filing for bankruptcy. Before filing for bankruptcy you may want to consider a loan consolidation or debt adjustment so that you may be able to pay back the debt without having to file for a bankruptcy. The downside to bankruptcy is that it will affect your credit score which is why many choose to pay off debt that may never be paid off. If your debt is over fifty percent of your annual income and you know that you will be living on the edge of your paycheck for the next five years, then a bankruptcy is appropriate. Individuals who are struggling to get by will often fall behind on payments which are reported on your credit score. If you are not capable of keeping up with payments on time because you have other expenses such as rent, gas, cell-phone, then you should consider filing a bankruptcy. Debt may linger for many years unless you do something about it.
Bankruptcy will ruin my credit score forever
Your credit score takes a hit every time you fall behind on a payment. If you are living paycheck to paycheck, then you will notice that making credit card payments is a difficult thing to do. If you are avoiding the grocery store to buy for food or you are ignoring your vehicle maintenance responsibilities, then you may also be falling behind on other payments. When you file for bankruptcy you are giving yourself another chance to build credit. Upon filing for bankruptcy, individuals have been able to take out secured credit lines and have been able to borrow from banks within the first year of filing for bankruptcy.
You must file bankruptcy with your spouse
The idea is that after you are married you and your spouse act as one entity. You finance a home together and you even file taxes together, however, when a spouse files a bankruptcy it does not mean both of you must undergo the process. When a married person wants to file for bankruptcy they can do so without involving their spouse. The issue arises when both parties in a marriage have a claim to a certain property. If you are not able to exempt the joint property, then it may become bankruptcy estate. However, when a joint property is sold, the trustee will pay off the portion that belongs to the other spouse. Whatever the case may be, when you are filing for bankruptcy and you are in a marriage, it is best to consult with an attorney about the types of properties that may be exempt. An attorney may guide you through a Chapter 13 bankruptcy where you may keep all of your property and sell whatever property you don’t want.
Only people who are behind on their payments may file a bankruptcy
The truth is that individuals who file bankruptcy may be doing so because they are behind on payments and are fed up with debt collectors calling at all hours of the day. Nonetheless, you don’t have to wait until you are behind payments to consider the benefits of a bankruptcy. In fact, if you are keeping up with your debt payments and you realize you may not have the capability to pay it off within five to ten years, then it is best to consider bankruptcy while you are still capable of maintaining payments. When you fall behind on your payments it will reflect on your credit score and will allow the debtors to take any action before you file a bankruptcy. Debt collectors may notice that you are falling behind on payments and they may pursue any debt collecting activity before you file for bankruptcy. Sometimes it is better to make a sound decision about bankruptcy while you are still in a good standing with your creditors.
Bankruptcy doesn’t really work, at the end, I will still need to pay off my debts
People may be thinking “why should I pay for bankruptcy only to have my debt pursued by debt collectors in the future?”. The truth is that once you file for bankruptcy, it is illegal for any person or entity to seek repayment of a debt that has been discharged. As a matter of fact, upon filing a bankruptcy your creditors may no longer pursue any debt collecting activity. The Automatic Stay law provides that once a debtor files a bankruptcy claim through any of the bankruptcy chapters, it is illegal for creditors or debt collectors to contact the debtor for payment. Furthermore, you may still be required to pay the debt that is non-dischargeable. Non-dischargeable debt such as student loans, government loans, or debts that are owed to child support or alimony, may not be discharged through a bankruptcy. Before you file a bankruptcy, it is crucial to speak with an attorney so that you may have a better understanding of the types of debts that may be discharged.
Filing for bankruptcy is a decision that many avoid because they believe it will ruin their reputation. Credit card companies want you to believe that a bankruptcy will not be beneficial. Credit card companies would rather see you paying off a debt for the ten years. However, the bankruptcy law explains that everyone is eligible for financial relief and everyone has the right to file a bankruptcy. If you wish to have your case reviewed by a bankruptcy expert, you may contact the Bankruptcy Attorney at 424-285-5525.