What You Don’t Know About Bankruptcy But Thought You Did!
These days a lot of people know a little bit about bankruptcy. Sometimes because they went through a case, or they knew someone who did. More often its because they heard from a friend who heard from a friend who said… You get the idea. Like most rumors, most of this information is wrong and some of it is dangerously wrong. Over the years we have accumulated the most common misconceptions and tried to address them here.
Please remember that this information is general and not intended to address your specific situation.
Click the links below for helpful information.[/vc_column_text][vc_tta_accordion style=”modern” shape=”square” gap=”4″ c_icon=”chevron” active_section=”0″ no_fill=”true” collapsible_all=”true”][vc_tta_section title=”“I Heard That … I Won’ t Get Credit for 10 Years.“” tab_id=”1482180832580-3323f3ba-5d54″ el_class=”accordion_page”][vc_column_text]For most people this is simply wrong. In virtually every year for the last decade, something like 1.5 million people filed bankruptcy. That’ s simply too many people — most of whom have regular income and are back on their feet — for creditors to ignore.
Your credit report can reflect a bankruptcy for 10 years but most people qualify for some loans immediately after their bankruptcy is completed.
Many lenders will charge higher interest rates so you will need to shop around for reasonable deals. However, historically the waiting period after bankruptcy to qualify for conventional home loans is 2-3 years. In other words, many lenders will effectively ignore a bankruptcy if you otherwise qualify and have handled your remaining debts responsibly within a couple years after bankruptcy.
Indeed, many lenders will now suggest bankruptcy to get rid of old debts in order to qualify for a new loan. By eliminating your old debts, your debt-to-income ratio will improve and it will be difficult to file again for certain time periods. So they can count on your income being used to pay them — and that you may not be able to file a bankruptcy again for awhile.
So in reality, the greatest danger is actually getting too much new debt and wasting the fresh start given in a bankruptcy. Being careful about credit is simply more critical[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I’ll Lose All My Property.“” tab_id=”1482181008581-6d07e8b6-d4b6″ el_class=”accordion_page”][vc_column_text]This is just flat wrong.
Keep in mind a critical thing: Bankruptcy is not about punishment. Bankruptcy is meant to help you get a fresh start. It is not there to punish you for not paying your bills anymore.
In bankruptcy there is the possibility of losing property in different ways but it does not happen automatically or to most people. There are precise rules when and how this can happen. And for most, going through bankruptcy usually means losing nothing at all.
Making sure you get through the case and keep what you need is what your lawyer does. This is the first and most important thing a lawyer does — make sure you aren’t risking anything you are not willing to risk.[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I Could Keep All My Property and Wipe Out the Debt on It.“” tab_id=”1482183139441-eb02ca60-92b1″ el_class=”accordion_page”][vc_column_text]Wouldn’t it be great if we could buy a house, file bankruptcy and keep the house while wiping out the mortgage? Or the loan on the car?
But can you imagine anyone would ever make loans again on those things, if you could? The law can’t work that way.
Bankruptcy can eliminate your personal obligation to pay many debts but it cannot wipe out most liens on the thing you bought with a loan.
For example, a mortgage is a lien you agreed to have placed on your house. So the mortgage lien is normally not wiped out and you still have to pay it off or risk losing the property.[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I Don’ t Have to File Against All My Debts Or List All My Property.“” tab_id=”1482183171761-1b67c42b-3cf5″ el_class=”accordion_page”][vc_column_text]You have to list everyone you owe or might even possibly owe and all the property you own in any way. Intentionally leaving out these things is a crime!
That does not mean you cannot pay someone back or keep your property!
It doesn’t mean you will have to give up the things bought with a particular loan. Or give up the things you owe nothing on.
It is possible to agree to remain legally responsible (“reaffirm”) for a debt and you can always voluntarily repay any debt listed in a bankruptcy.
Don’ t confuse listing your property in a case with automatically losing it — that’s incorrect and dangerous. No doubt your creditors want you to believe it, though.
The paperwork in your case is about disclosure — just telling it like it is. So everything is in there — because you’re an honest person who is not trying to do anything wrong.
You count on your lawyer to explain the legal effects of the paperwork and make sure you’re doing it right.
For more information: The Perils of Guessing
[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I Can Give Away My Stuff So I Don’ t Lose It to My Creditors.“” tab_id=”1482183238534-fb9d4b38-7da4″ el_class=”accordion_page”][vc_column_text]In the right circumstances this is known as fraud. That’s probably a bad idea. (Fraud is always a bad idea of course.)
You can give things or money away without getting into trouble, of course. It happens all the time.
But giving away your things to avoid having them taken by your creditors (or by a bankruptcy trustee) could result in having the property taken back for those creditors anyway, denial of bankruptcy relief and, in serious cases, a criminal charge being brought against you.
The bottom-line: Do NOT start giving things away because you are thinking of filing bankruptcy or to avoid your creditors getting them unless you have discussed it in detail with your lawyer.
Saving your property through the bankruptcy process is what we help you do. Giving away your stuff so you don’t lose it is almost never a good plan and it won’t help.[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I Can’ t Do Anything with Taxes or Student Loans.“” tab_id=”1482183283086-8ff8c9da-6be3″ el_class=”accordion_page”][vc_column_text]Actually, a lot of taxes can be dealt with in a Chapter 13 repayment plan without interest.
Some of your older — filed — income taxes may even be wiped out in any kind of bankruptcy. It is a highly technical issue but taxes are dealt with every day in bankruptcy court.
Student loans are usually not wiped out by a bankruptcy. You can deal with them in a Chapter 13 payment plan and effectively force them to defer collection while you are in the case.
And in rare cases of extreme financial hardship that is likely to extend for the forseeable future, you may be able to convince a judge to grant a hardship discharge of student loans.
In many jurisdictions, proving “undue hardship” is very hard because you have to pass the Brunner Test.
Thankfully, in St Louis, filing bankruptcy on student loans is a little easier because we use the totality-of-the-circumstances test.
Further reading: Student Loan Discharge[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I Can’t Get Rid of Judgments.“” tab_id=”1482183317086-ebc87367-e776″ el_class=”accordion_page”][vc_column_text]This is typically not true. If you could wipe out the type of debt that is behind the judgment, then you can normally wipe out the judgment too. But it is important to act fast.
A couple of examples might be helpful.
Suppose you owe a credit card and cannot pay it. The credit card company can sue you for failing to pay. If they win, they receive a judgment against you. Bankruptcy can still help get rid of this type of debt and the judgment for it.
On the other hand, if you owe something that is normally not wiped out in bankruptcy (like child support, alimony, recent taxes, and so on) then a judgment to collect the debt may not be wiped out. You might be able to better organize the repayment of the debt in Chapter 13, however.
And sometimes there’s an in-between situation. Some debts are usually dischargeable in bankruptcy, like credit cards, but can be held non-dischargeable if the court concludes you did something improper. In some cases, a trial outside bankruptcy court can rule on those kinds of issues making it harder or impossible to wipe out debt in a subsequent bankruptcy.
So it is important to get in touch sooner than later if there is a lawsuit going on.[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I Can Get Rid of Child Support.“” tab_id=”1482183358148-e7d2c7ee-3035″ el_class=”accordion_page”][vc_column_text]Bankruptcy will probably not be much help.
Chapter 7 bankruptcy won’t wipe this out. It doesn’t matter what people say on the street, there’s nothing that will change your child support obligation except going back to family court.
A Chapter 13 wage earner plan may help set up a payment plan to deal with back payments. But bankruptcy law cannot eliminate a child support obligation. And it also cannot lower an unfair or excessive support payment. You will also need to keep up on your support payments during a Chapter 13 or you can’t wipe out your other debt.
Sometimes high child support causes other debt problems — because you have to borrow money just to stay afloat. In that case, the other debts may be handled with bankruptcy while the support obligation is addressed in family court.
We may be able to recommend a family law attorney to assist you here, if you believe there’s good cause for a lower support payment.[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I Could Max-Out My Credit Cards Before Filing Bankruptcy.“” tab_id=”1482183404469-474f7a49-e7d1″ el_class=”accordion_page”][vc_column_text]This is a really, spectacularly horrible idea!
As soon as you start seriously considering bankruptcy, you should stop using credit. Borrowing more money when you are already having trouble paying back you debts might be considered fraud.
And if you do it deliberately because you don’t intend to pay it back — you want to wipe it all out with bankruptcy — at minimum the court can refuse to wipe out the new debt you incurred. It could deny you a discharge of all your debt. And it could potentially be a federal crime.
In reality, you should stop using credit cards as soon as you know you’ll have trouble paying them back. Stop digging the hole deeper! Think of it as your first step in freeing yourself from the debt slavery you are trapped in. Start living on what you bring in without the credit boost to your spending capacity and see what you can truly afford and what you truly cannot.
Further reading: Beware Recent Usage[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … I Won’ t Qualify for Student Loans, Jobs, or Apartment Leases.“” tab_id=”1482183461864-21d80507-76a8″ el_class=”accordion_page”][vc_column_text]The government will generally not be able to discriminate in granting government guaranteed student loans or entitlements like disability, food stamps or unemployment.
Your current employer cannot take action against you simply because you filed bankruptcy. Future employers can but so many people have filed that many look at this mostly to see if something went wrong in the case or if you got rid of the old debts so you won’t be tempted to steal from them to pay your debt off instead.
It is not against the law to refuse to rent or make other loans to you, though. But since so many people have filed bankruptcy over the years there is virtually always someone willing to do business with our former clients.
You may have to look harder — and you should make certain you keep up your credit after the bankruptcy so you can prove you are a better risk than you used to be.
In reality, you should stop using credit cards as soon as you know you’ll have trouble paying them back. Stop digging the hole deeper! Think of it as your first step in freeing yourself from the debt slavery you are trapped in. Start living on what you bring in without the credit boost to your spending capacity and see what you can truly afford and what you truly cannot.[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … A Foreclosure or a Repossession Will Ruin My Credit Forever.“” tab_id=”1482183509698-4a221405-4c2f” el_class=”accordion_page”][vc_column_text]Bankruptcy can help get rid of houses or cars you cannot afford.
Bankruptcy can’t force a lender to take a bad property or bad car off your hands. But it will help protect you from any remaining balance of the debt after the property is sold by the lender. But a foreclosure or a repossession might appear on your credit report.
The foreclosure or repossession in connection with bankruptcy is often treated as a related event — since it really is — so the foreclosure or repossession is no better or worse than bankruptcy on your credit report. It means one thing: Yuo had trouble paying your bills at that time.
Obviously future lenders will be concerned that you were unable to keep up payments on a prior house or car. But this mostly means you must be careful to borrow only what you can safely afford in the future. And that’s not necessarily a bad thing.
Further Reading: Fresh Start is a State of Mind Too[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … A Counseling Program is Better than Bankruptcy for my Credit.“” tab_id=”1482183557073-74a71cc5-452a” el_class=”accordion_page”][vc_column_text]Sometimes this is true, more often it turns out to be about the same and costs more.
Typically if you are simply having trouble managing your budget to deal with a small amount of debt compared to your income, a personal financial counseling program could be a good idea.
We will refer folks to counseling when appropriate. It is also important to shop carefully for credit counseling programs as they are not regulated in many states and some have turned out to be scams. In Eastern Missouri, we would recommend only the local office of Consumer Credit Counseling, now known as Clearpoint. Other services, particularly those over the Internet in distant states, may provide the same payment plan services but at higher cost and are typically less helpful. (Some additional reading about counseling problems (PDF) and reputable counseling (PDF).)
A repayment program is often as bad on your credit report as bankruptcy. It says the same thing: This person got into trouble with debts. Some creditors even seem to take advantage of folks trying to “do the right thing” by increasing their interest rates through such programs. They are not required to continue accepting the repayment plan instead of suing or collecting directly from you, either. It is all voluntary, for you and them.
Bankruptcy is anything but voluntary for most creditors since a federal court steps in to protect you. Also most credit counseling programs do not address the entire debt problem, including homes and car loans.
Also keep in mind that what may look like a credit counseling operation on the Internet or TV may actually be a debt settlement company. These are typically bad news for consumers and may actually be illegal in Missouri.
Further reading: Tips to Avoid Debt Management Scams, Debt Consolidation, Debt Management, and Debt Negotiation, How Long Should I Try To Avoid Filing[/vc_column_text][/vc_tta_section][vc_tta_section title=”“I Heard That … Every Lawyer is the Same. I Just Need the Best Price.“” tab_id=”1482183591600-6835bff5-29dd” el_class=”accordion_page”][vc_column_text]People are different and so are lawyers. (Despite most jokes, lawyers really are people too!)
Lawyers are more comfortable and experienced in different things, even different types of bankruptcies. We prefer to handle cases involving individual consumers and small businesses. Others prefer to represent large businesses or large creditors.
Even among “consumer bankruptcy” lawyers like us, there are wide differences. Some are very active in bar groups, devote a great deal fo time and study to the profession. Others prefer to focus on moving a lot of (hopefully) simple cases through the process without knowing all the options, and only learn all the issues if a client runs into obvious trouble.
For example, many attorneys charge less “up front” for a Chapter 13 but was that a better deal? What if it takes 3 – 5 years and you pay several thousand dollars back that you could have wiped out in less than 6 months in a Chapter 7? Or what if you save $100 on a quick Chapter 7 but you lose something you wanted to keep or end up paying back a loan you might otherwise have wiped out, how much did you save? If you are trying to address thousands of dollars of debt and restructure all your financial affairs, saving a few dollars is important but do you know what you give up?
Our practice is devoted to helping families achieve a financial fresh start.
We do not take on very large volumes of cases, but try to keep our costs down instead. This way we can devote more time and care to the clients we accept. We spend time keeping up with recent developments in the law, being leaders in the profession, and assuring ourselves that we can see the risks for our clients — before disaster strikes, not afterwards.
We take pride in our work. We have a strong reputation in the legal community. So if we can help, we will, at a fair price. And if we cannot, we can probably refer you to someone who can. That’s good for business and good for you. It’s that simple.
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