Chapter 7 Bankruptcy
What you need to know about Chapter 7 and Chapter 13 Bankruptcy.
Top 3 Surprising Things About Bankruptcy
It’s not that difficult to file for bankruptcy:
Yes, the laws and process can seem complicated, but if you have an experienced lawyer to help guide you through, then it’s a relatively straightforward process.
Creditors have to leave you alone the moment you file for bankruptcy:
The moment a debtor files a petition with the bankruptcy court (and these days, most petitions are filed online electronically), something called the “automatic stay” goes into effect. This means that creditors are not allowed to contact you directly to seek payment. Instead they musts go through the bankruptcy court to obtain payment. If a creditor is aware that you have filed for bankruptcy and then attempts to contact you about payment, it is a violation of the automatic stay and that creditor can be penalized by the bankruptcy court. In other words, the automatic stay gives you some breathing room while you work with your lawyer on the bankruptcy process.
Chapter 13 plans don’t require full payment of debt.
The whole idea behind Chapter 13 is that it’s a payment plan negotiated between a debtor and all of its creditors. So the amount that you end up paying back depends on your circumstances, your income, your assets, your debts, your creditors, and perhaps most importantly, your lawyer.
Top 10 Fears About Bankruptcy
Your friends, work colleagues and others will know that you filed for bankruptcy:
Most likely none of these people will know unless you tell them yourself. Bankruptcy filings are part of the public record, but there’s no way that someone would know that you filed unless they just happened to be digging through all of the court records and stumbled on your name. Since most people we know have better things to do with their time, odds are no one will know that you filed.
It’s too hard to file for bankruptcy now that they’ve changed the law:
All the same options are still available. That has not changed. The 2005 law just added a couple speed bumps and made it a little more involved and a little more expensive than it used to be.
You can’t file for bankruptcy if you have a job:
Actually, you generally need to have a job to be able to make the payments in a Chapter 13 repayment plan. For a Chapter 7 liquidation, you can file whether you have a job or not.
You can’t discharge credit card debt or medical bills in bankruptcy:
Those are both examples of what’s known as “unsecured debt.” Almost all unsecured debt can be discharged in bankruptcy. (That’s why the credit card companies pushed so hard to add speed bumps to the 2005 law.)
You lose everything you own if you file for bankruptcy:
Definitely not true. In many cases people don’t lose anything. Plus, our country’s bankruptcy laws contain certain exemptions for personal items and necessities such as your house, car, household furnishings, retirement plans (e.g., pensions or IRAs), wages and cash value of life insurance. Additionally, if you are in a situation where you feel you may lose too many assets, you have the option for filing for a Chapter 13 payment plan (rather than Chapter 7 liquidation) which enables you to keep all of your assets as long as you can continue repaying some of your debt.
If you file for bankruptcy, you can’t get credit for 10 years:
That’s just not true. Debtors who file for Chapter 13 can actually borrow money during the case. And debtors who go through a Chapter 7 liquidation tend to receive many credit card offers after the case. It is worth being aware, however, that a bankruptcy filing may be included on your credit report for up to 10 years.
If you file and you’re married, then your spouse must file too:
Not true. There’s no requirement for one spouse to file if the other does. There are situations where it makes sense for both to file and situations where it doesn’t. It depends on the nature of the assets and the debts. It is important, of course, to be very careful and make sure to understand what property will be treated as property of the bankruptcy estate.
Filing for bankruptcy means you’re immoral, irresponsible or a bad person:
More than 90% of bankruptcy filings are related to job loss, illness or divorce – not people being irresponsible or immoral. Additionally, the bankruptcy process was created specifically to be a safety valve and help Americans deal with these kinds of problems. Our society and economy does better when people are able to be productive and contributing members, and we as a nation came up with a very pragmatic solution that benefits everyone on the whole.
Bankruptcy means hard-working people who pay their bills on time pay for the mistakes or irresponsible people:
This is a myth created by clever public relations people working for the credit industry to help get the 2005 bankruptcy law passed. The reality is that credit card companies have been extremely profitable and already factor in the cost of defaults into their accounting. The cost to our society would actually be a lot higher if people did not have a viable bankruptcy option as people under the strain of unpayable debts would cease to contribute to the economy and everyone would pay much higher (though less direct) costs in that way.
You must have a minimum amount of debt in order to file for bankruptcy:
This is not true. There is no minimum amount of debt required to file a bankruptcy case. If you decide that your financial situation would be helped by filing for bankruptcy, the law allows you to file.