Bankruptcy is essentially a legal way to settle your debts for less or in many cases you may have your debt discharged forever. After your debt is discharged you are legally protected by the Federal Bankruptcy code which prohibits any debt collecting actions from a creditor against a debtor. For this reason, there are many myths and misinterpretations that your creditors want you to believe. In many instances, a glance at the bankruptcy code will defy many of the myths circulating about bankruptcy. To those who do not have time to browse law codes, the following section will provide common misconceptions about bankruptcy and a brief description of the legal understanding of bankruptcy.
Keep in mind that there are many methods or chapters to file bankruptcy that will affect the debtor differently. Every case is different depending on the debtor's specific situation including their state law, the amount of debt, the amount of renewable income, the number and value of assets, and the type of debt (secured or unsecured). To have an accurate depiction of your bankruptcy situation it is advised to contact a local bankruptcy state attorney. The San Diego Bankruptcy Attorneys can be reached at 619-488-6168. If you are considering bankruptcy call us with your questions, we are ready to provide guidance and clarity on your bankruptcy case.
The following section will review the common myths about bankruptcy.
Myth: The debt discharged by bankruptcy will eventually have to be paid back.
False, all your debt is discharged under Chapter 7, you may qualify for a repayment plan if you wish to file under Chapter 13.
Bankruptcy laws have been a part of the US Constitution since its creation in 1787. Since then bankruptcy codes have been substantially amended to include laws that protect individuals after their debt has been discharged. The debt which is discharged after a court hearing is a debt which can never be reclaimed by debt collectors and creditors. Debtors are protected from harassment from creditors who pursue debt collecting actions after the debt has been discharged. Under U.S Code 365, the Securities Investor Protection Act of 1970, any debt collecting activities is a violation of Bankruptcy Code and may lead to legal repercussions.
There may be some confusion on the different types of Chapters in the Bankruptcy Code which allow certain individuals to pay back some of their debt. Under Chapter 13 individuals with a renewable income may qualify for a reorganization of their debts to include a lower consolidated monthly repayment of their debt. Under Chapter 7 individuals may qualify to have all of their debt liquidated which means all of their non-exempt property is sold and the earning are distributed amongst the creditors.
While some individuals may find a repayment program to be more in their favor, some may find a total liquidation of assets to better suit their case. To determine the best course of action for your bankruptcy situation, it is advised to consult with a local bankruptcy attorney who can provide some clarity on the Bankruptcy code and procedure.
Myth: After you file for bankruptcy your credit will never be ‘good’
False, your credit score can improve if you pay off your future debts and bills on time.
Having a good credit score depends on your ability to pay recurring bills on time. Individuals who want a better credit score in a shorter amount of time will need to pay more than the minimum requirement. Paying every bill on time and providing more than the minimum requirement may be complicated if your current financial standing is unstable. Bankruptcy allows individuals with a renewable income to consolidate all of their debts and establish a repayment program that is practical and law abiding. In bankruptcy cases, the debtor will more than often be capable of discharging some of their debt meaning that not all debt will need to be repaid. Some of the debt can be repaid with installments while a portion of the debt can be written off.
Whether you filed for Chapter 7 or Chapter 13, your debt will be settled for less than you currently owe which will allow you to make payments on time. In addition, you may have the opportunity to make bigger payments allowing you to pay off your debt faster. A good credit will depend on any future debt accumulated and your ability to pay it off in a certain amount of time. Many individuals will find that their credit score will jump back to a good standing after 2 years of making payments on time and staying on top of their financial affairs.
Myth: All my property will be repossessed after I file for bankruptcy
False, in a bankruptcy case property, is distinguished between exempt and non-exempt property. Non-exempt property in Chapter 7 will be repossessed, but the debtor will be allowed to keep their exempt property.
Filing for bankruptcy is a process that requires a clear understanding of one's economic affairs. Individuals who have no property and nonrenewable income may find that they are better suited for a Chapter 7 liquidation. Filing for Chapter 7 means that the individual will have all of their non-exempt property repossessed and sold. Non-exempt property can include the debtor's house, car, and other properties. The earnings of the nonexempt property will be used to pay off the creditors. When you file a Chapter 7 personal bankruptcy, your bankruptcy attorney should be able to guide you through the exempt laws that guide your case. Depending on your state law the debtor may keep their working vehicle, home, and other items that are essential for working. Individuals do not have to have to give up all of their property. After a trustee sells off all of the debtor's non-exempt property and the earnings have been used to pay the creditors, any debt that is unpaid becomes discharged forever.
Individuals who own property such as a home and a car may not want to have their property repossessed. These individuals may qualify for a Chapter 13 debt resettlement program. Chapter 13 allows individuals with property the opportunity to maintain their property by providing a law-abiding repayment program. In Chapter 13 cases the debtor will have to meet with judges and creditors to establish a repayment program that they can all agree on. Once a repayment program is settled, the individual will be allowed to continue owning his or her belongings while paying back their debt in a reasonable time frame. Most people do not understand that differences in bankruptcy codes which is why many would believe that bankruptcy means automatic liquidation. Speak with a local attorney if you have a property you wish to keep after filing a bankruptcy petition.
Myth: Your friends and family will know you have filed for bankruptcy
False, bankruptcy is only reflected on your credit report which is seen by yourself and other specialized individuals. Filing for bankruptcy does not become public information.
Bankruptcy will not be reflected on any of your public domains. The only people who will have knowledge of your bankruptcy will be the specialized individuals handling your bankruptcy case. When a bankruptcy is reported on your credit report you have the option of choosing who has that information. Most individuals can choose to keep their bankruptcy case private. In addition, a bankruptcy cannot be discriminated against when applying for housing or employment. Your bankruptcy case will be private and will be shared only with individuals you choose. However, credit card companies may refer to your credit report and may deny you certain credits.
Myth: Debt collectors will continue to harass you through phone calls, emails, and mail.
False, once a debt is discharged it is discharged forever and any debt collecting activity is considered unlawful.
After you have successfully filed for bankruptcy your debt can never be reclaimed by debtors. Once the debtor files for bankruptcy, the creditors will be unable to pursue any debt collecting activity. When a bankruptcy is filed, the automatic stay clause prevents any creditor from pursuing a debt. From this moment on, a debt collector is unable to pursue any debt collecting activity and if they do, they may face lawsuits for violating the bankruptcy laws.
If a debt collector wants to pursue a debt while the debtor is protected by the automatic stay, the creditor will be required to file a claim to the bankruptcy court to have the stay lifted. After a formal petition to lift stay is filed, the bankruptcy court will decide whether the creditor can pursue payment or not. Usually, the creditor will have to prove that the debtor is filing for bankruptcy in bad faith (committing fraud). If creditors can prove that their debtor is filing in bad faith they will be capable of pursuing their debt. Usually, creditors can have a Chapter 7 case moved to a Chapter 13 case so that they are included in a repayment program. However, after a judge discharges your debt in a courtroom, there is very little your creditors can do to pursue any form of payment.
Myth: Businesses will be forced to shut down and discontinue operations
False, businesses and corporations do not have to file for a Chapter 7 liquidation.
Big businesses and corporations do not have to liquidate their business to pay off their debts. The bankruptcy code allows business many repayment options that can be achieved through a Chapter 11 business bankruptcy. Business who file a Chapter 7 liquidation will be assigned a court-appointed trustee who will be in charge of selling the business and repaying any creditors with the earnings. The business will cease all operations and will be forced to shut down. However, a business may choose to file a chapter 11 business bankruptcy which allows the business owners to establish a comprehensive repayment program. The repayment program will allow the business to receive the benefits of the automatic stay and will allow the business to continue its operations.
Myth: You may only file for bankruptcy once in your life
False, you may file for bankruptcy more than once in your lifetime.
Individuals are capable of filing for bankruptcy a repeated number of times.
- If you are an individual who has filed a Chapter 7, you must wait 8 years from the filing date to file another Chapter 7.
- If you are an individual who has filed a Chapter 13, you may file another Chapter 13 once your previous Chapter 13 is closed. Chapter 13 repayment programs last between 3 to 5 years. The faster you pay off your Chapter 13, the faster you will be able to qualify for another Chapter 13 discharge.
- If you are an individual's who has filed a Chapter 7, you are capable of having your debt discharged through a Chapter 13 after four years of having your debt discharged through a Chapter 7.
- If you are an individual who has filed a Chapter 13, you must wait 6 years before having your debt discharged by a Chapter 7.
To learn more about filling, please contact a local attorney who understands the laws that guide your situation.
The San Diego Bankruptcy Attorneys are capable of guiding your case in a courtroom and during your creditor's meeting. Our experts understand that a bankruptcy can become very complicated when an individual holds property and assets. Our experts are capable of explaining your situation and providing options that will aid your situation and align with your future goals. In most bankruptcy cases, an individual will seek to retain some of their property. If you are an individual who wants to keep their property, do not file a Chapter 7. Our experts can help you file a successful Chapter 13 so that you maintain your property and establish a law-abiding repayment program.
To contact the San Diego Bankruptcy Attorney, please contact our offices at 619-488-6168 or you may visit our offices at 750 B Street, Suite 2510, San Diego, CA 92101. Our team is ready to help file your petition, organize your financial documents, and represent your case in a court of law or at the creditors meeting. Do not let any creditor scare you away from the benefits of bankruptcy. There are many myths surrounding bankruptcies, to have a better depiction of your situation call us today.