For many people, bankruptcy may seem like the end of the world. However, personal bankruptcy is more common than you might think. Hundreds of thousands of U.S. citizens file for Chapter 7 and Chapter 13 bankruptcy every year.
Nobody wants to file for bankruptcy, but it can give you a fresh start when you do it right. To make wise decisions, you should obtain accurate information from bankruptcy lawyers and avoid panic-inducing misconceptions.
In this article, Dalyla Santos, founding and managing attorney at The Santos Law Offices, PA, serving Miami-Dade and South and Central Florida, debunks some common myths surrounding bankruptcy.
1. Only Financially Irresponsible People File for Bankruptcy
Believe it or not, most bankruptcy filers aren’t financially reckless, irresponsible individuals. In most cases, people end up filing for bankruptcy because of circumstances like divorce, job loss, or severe illness—and their associated costs.
The COVID-19 pandemic has made unemployment rates soar. In April 2020, the national unemployment rate reached 14.8%, an all-time 72-year high. These statistics represent people who lost their jobs through no fault of their own.
The bottom line is that bankruptcy should never be a source of guilt or self-blame.
2. If I File for Bankruptcy, I Will Lose Everything
Many people mistakenly believe that if they file for bankruptcy, they will end up on the streets with nowhere to live and nothing to wear.
While some differences exist between Chapter 7 and Chapter 13, exempt property in bankruptcy filings usually includes the debtor’s house and vehicles (up to a specific value). In addition, other possessions, such as clothing, jewelry, and household goods, are usually safe as well. That means that the chances of losing your home and essential possessions are very low.
3. A Good Lawyer Can Help Me Keep All My Property in Bankruptcy
Some debtors blithely believe that if they hire the right lawyer, that person will arrange for them to keep all their assets, including the luxury boat and the vacation cabin. But, in reality, luxury property is usually non-exempt under Chapter 7 bankruptcy.
If you hear about someone who has managed to keep all their nonessential assets in bankruptcy, these assets were likely over-leveraged, rented, or leased.
4. Bankruptcy Will Get Rid of All My Debts
Although Chapter 7 bankruptcy can discharge many unsecured debts like credit card charges, back rent, personal loans, and medical bills, some debts do not qualify for bankruptcy discharge.
Examples of non-removable debt include spousal support, child support, and student loan debt.
Under Chapter 13 bankruptcy, also known as a wage earner’s plan, most debts remain standing, and the debtor must adhere to the court-ruled repayment program.
5. Bankruptcy Will Kill My Credit Forever
Bankruptcy filers will likely have access to limited credit, and bankruptcy will remain on the filer’s credit report for up to 10 years. However, credit scores can bounce back pretty quickly after that bankruptcy period with the right financial strategy.
6. Filing for Bankruptcy Is Complicated
Filing for bankruptcy is comparatively straightforward. Technically, you could even file all the legal paperwork yourself. However, it is highly advisable to consult a bankruptcy lawyer before filing.
A knowledgeable attorney can help you consider your options, file under the correct chapter, and protect your property correctly.
7. Filing for Bankruptcy Is a Once-in-a-Lifetime Option
Unfortunately, people may find themselves in a financial crisis more than once. If necessary, you can file for bankruptcy again, although limitations do exist.
In particular, it is possible to file for Chapter 7 bankruptcy every eight years. However, with Chapter 13, the debtor can usually file again as soon as their previous debt reorganization is complete or after two years.
However, an additional bankruptcy is not something you want on your credit score. Therefore, you may want to consider all your options before you declare bankruptcy again.
8. I Can Spend Recklessly Before I File for Bankruptcy
Theoretically, since Chapter 7 dissolves credit card debt, prospective filers may think they can go on a binge-spending run and then come clean of the debt in bankruptcy court. However, a court would consider such practice fraudulent and refuse to discharge the debt.
9. If I’m Married, My Spouse Will Need to File for Bankruptcy as Well
If both spouses share the majority of the debt, both of them need to file. If one spouse doesn’t file, he or she may have to face payment demands from creditors.
However, if one of the spouses incurred a large amount of debt in their name only, they should probably file alone.
The Santos Law Offices, PA: Bankruptcy Attorney in Miami and Orlando, FL, with a Personalized Approach
Are you facing bankruptcy? You don’t have to do this alone. At the Santos Law Offices, we focus on giving each of our Florida clients professional, effective, and affordable legal services.
If you have questions, be sure to call and speak to a member of our Santos Law team at 866-661-3816 or complete our online form. We offer free consultations and can schedule Saturday consults by appointment. For your convenience, we can do a call over the phone or Zoom, so you don’t have to deal with traffic or parking. If you prefer, you can visit us at our offices in Miami or Orlando.
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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.