personal bankruptcy myths

With the 21st century in full swing, I am always amazed at how much misinformation there still is out there about individual or personal bankruptcy. I regularly take calls from people who are confused and misinformed about the process, the benefits and the consequences of filing for bankruptcy.

I would like to bring some clarity to anyone who is in the consideration stage, or beyond, by debunking the more prevalent myths that seem to persist.

Myth #1: Personal bankruptcy will save my house from foreclosure.

Filing for Chapter 7 or Chapter 13 personal bankruptcy can give you the time you need to get a better handle on your finances, but filing can only stop a foreclosure temporarily.

For some, a Chapter 13 plan may keep you in your home if the bank is willing and you are able to make a fiscal recovery that enables you to stay current on your mortgage while also paying off the arrears -in manageable payments. 

Myth #2: Chapter 13 is a bad deal. Why would anyone even consider it?

Bankruptcy is not a “one size fits all” endeavor. First, you may not qualify under the means test for a Chapter 7, but you likely can for a Chapter 13. Furthermore, if you have assets you want to keep, then reorganization (not liquidation) is the way to go.

Chapter 13 can be a highly effective tool for controlling -and even reducing, certain priority debts when you are not judgement proof. There are many other benefits.

It is exceedingly difficult to undo a petition once it’s filed. I strongly advise consulting with an experienced bankruptcy attorney before making any filing decisions.

Myth #3: I need to be deep in debt ($$X amount) to qualify for bankruptcy.

The amount of your debt is not normally the first consideration in any bankruptcy. Rather, it is your ability to repay your debts that is of primary concern. Many facing financial stresses are behind on payments, but if they implement a strict budget and/or reduce a portion of their debt, they will be alright.

Others cannot now, nor ever get caught up to repay the amount of debt they owe. In either of these cases, a Chapter 13 or Chapter 7 can be a real solution.

Myth #4: It’s too late to stop foreclosure with a bankruptcy filing.

While a full filing of either Chapter 7 or 13 is quite time consuming, there may still be a way to stop the bank from foreclosing on your home.

The procedure is an Emergency Bankruptcy Petition and it allows an individual to file for bankruptcy by submitting the bare minimum in terms of documents, which can expedite your path to the automatic stay that stops the foreclosure process.

Note that you will still need to complete the online financial counseling course before your “barebones” filing can be accepted by the bankruptcy court.

Myth #5: I will lose my home or my car if I file for bankruptcy.

In a liquidation or Chapter 7, what you can keep largely depends on how much equity the asset has and how much exemption protection you have available under the laws.

Most filers will be allowed to keep their primary vehicles. It is also possible and perhaps even beneficial to negotiate a buyback or redemption of the vehicle under certain conditions.

In Massachusetts, some homes have enough equity to be attractive to the trustee who may consider selling it in a Chapter 7. However, if your home’s equity is at or below the amount protected under the Homestead Exemption, you will be able to exclude it from liquidation.

If you have questions about Chapter 7 or Chapter 13, or if you need help filing for bankruptcy, please call my office to discuss your needs in confidence: 978-452-1116.

Related Information: (bankruptcy, chapter 7 exempt assets) (filing for bankruptcy, bankruptcy petition)