Tuesday, October 11, 2011

Bankruptcy Myths And Misperceptions

                There are many misperceptions about the new Bankruptcy Laws.  The Credit Card Companies have succeeded in convincing the public that it is more difficult to file Bankruptcy.  However, I have been doing Bankruptcy work for 14 years and my impression is that it is easier than ever.  If you qualify for a Chapter 7 there is very little a creditor can do to prevent your discharge and the process will move very smoothly with electronic filing. 

                MYTH – The Credit Card Companies had the Bankruptcy Laws changed and it is much harder to file Bankruptcy.

                NOT TRUE – While the Credit Card Companies have succeeded in their campaign to convince the public that Bankruptcy filing is more difficult I actually find it to be just the opposite.  The changes made by the Credit Card Companies actually allow me to guide my clients through the Bankruptcy process even faster than before.  We now have Electronic Filing and other streamlined systems that lessen the burden on Bankruptcy Filers.

                MYTH – I will have to confront my creditors in Court and explain my situation to the Judge. 

                NOT TRUE – You will be required to appear at the Bankruptcy Court 1 time.  That is for the 341(a) Meeting Of Creditors.  There are usually 20-40 other people having their Meeting at the same time.  The Meetings takes place in a Conference Room.  There is no Judge.  The Chapter 7 Trustee takes about 2-3 minutes for each Bankruptcy Filer.  Most of the questions relate to confirming your identity and whether you actually read your Chapter 7 Petition.

                MYTH – You cannot get a discharge for Credit Card Debt and you will have to make payments on your Credit Cards.

                NEVER TRUE -  If you qualify for a Chapter 7 Bankruptcy you will not need to pay back ANY Credit Cards. 

                MYTH – There are restrictive income limitations that prevent most people from filing Chapter 7.

                NOT TRUE –  Yes there is an income limitation.  However it is based on the average of the last 6 months.  If you have been unemployed or had a reduction in income, or know that you will be laid-off, it is easy to plan for a time period when you will qualify.

                MYTH – There are burdensome credit counseling requirements prior to filing Bankruptcy. 

                NOT TRUE – The credit counseling course can be completed via the internet and a follow-up phone call to the counselor.  The entire process takes about an hour and the cost is less than $50.

                MYTH – You cannot keep your household items and big screen tvs.

                NOT TRUE – If you just purchased something on a credit card you may have to give it back.  Otherwise, all reasonable household items are generally exempt.

                MYTH – Cannot keep your cars.

                NOT TRUE – Your cars are generally exempt and if you are financing your cars there is probably very little equity.  If you use your car for business the exemption amount is even higher.

                MYTH – The longterm damage to your Credit Score outweighs the benefits of Bankruptcy. 

                NOT TRUE – If you qualify for a Chapter 7 Bankruptcy and your debts are large enough that you are not able to qualify for a credit counseling program at a reasonable cost, you are better off filing Bankruptcy.  A typical repayment plan is 5 years.  In that time you can significantly improve your Credit Score and you will have the benefit of the cash in hand that would have gone to a repayment plan.