Bankruptcy is a perfectly legal and often reasonable solution to complex financial difficulties. If you are like most debtors, you incurred financial obligations that you had every intention of paying. Then you were hit with something major and entirely unforeseeable such as a job loss, car accident, medical diagnosis, or other disaster. Your financial picture changed, and you need a way out of the debt that is now drowning you. By providing you with a fresh start, bankruptcy can be the responsible financial choice.
For many people, however, bankruptcy holds a great deal of emotional weight. For some, it carries a stigma, as if they somehow failed by not figuring out another solution. For others, it is a frightening proposition that conjures up images of debtors’ prisons and the inability to get even the most basic future credit. If you are considering bankruptcy, it is only natural to feel some fear, trepidation, guilt, and sadness. The reality of bankruptcy, however, is much less mysterious or punishing than you might imagine. Here is the reality behind 5 common myths about bankruptcy.
1. You will lose everything you own
When thinking of bankruptcy, you might picture yourself losing your home, your car, and everything you own. In reality, however, this simply is not the case. Although the exact allowances vary by state, every state allows you to keep a certain amount of equity in your home and car, as well as personal property up to a certain dollar limit. You are also allowed to reaffirm existing debts, which means that you can sign a new promissory note and keep the item as long as you continue to make payments. Just remember that if you stop making payments, the item January be subject to foreclosure or repossession without benefit of bankruptcy protection.
2. You can’t get credit for 10 years
Many people believe that no credit is extended to people with a bankruptcy on their record. Since the bankruptcy remains on your credit report for 10 years, that must mean that you can’t get credit during that time, right? Actually, this is not true. You will begin getting credit card offers as soon as your bankruptcy is finalized. While these cards typically carry high rates and low limits, if you use them responsibly, they can help you quickly reestablish your credit. Quite a few people report buying a car at a reasonable interest rate within a year after their bankruptcy, and a home within two years.
3. Most people won’t qualify for bankruptcy under the 2005 means test
Much has been made out of the 2005 changes to the federal bankruptcy laws, including what is known as the “means test.” Although it sounds scary, this is merely a device for the bankruptcy courts to weed out people who are trying to abuse the system. If you, like the vast majority of bankruptcy filers, are an honest debtor trying to get out from under a mountain of debt, you will most likely pass the means test. Some people qualify solely on the basis of their monthly household income, while others must fill out additional documents that prove their monthly expenses. If you are not qualified for Chapter 7 bankruptcy under the means test, you can still file for Chapter 13.
4. You can’t discharge medical debts
For some reason, a lot of people believe that medical debts cannot be discharged in a bankruptcy. In fact, this could not be further from the truth. While student loans, certain tax liabilities, and such payments as child support are usually not discharged, medical bills fall into the category of non-priority general claims. For the typical bankruptcy filer, that means that they are simply discharged just like credit card debts.
5. You don’t need a lawyer to file for bankruptcy
This one is actually true, but you need to take a hard look at your personal circumstances before making a decision. The filing process is long and complicated, and failure to file just the right paperwork in just the right order could result in some of your debts not being discharged. You might even accidentally lose secured property for which you meant to keep paying, up to and including your home and car.
If your case is very straightforward, you easily pass the means test, and you are extremely comfortable filling out complex government documents, you might be able to file on your own. However, if you are pressed for time, have complicated finances, or do not have a crystal clear understanding of how each piece of the process fits into the whole, hiring a qualified bankruptcy attorney can ensure a stress-free filing experience.
If you are ready to take the first steps toward financial freedom, call the Law Offices of David M. Offen today at (215) 625-9600 to schedule your free initial consultation. We’re here to help you every step of the way.