Many times people have done quite a bit of online research before they call our office for a consultation.
We appreciate having informed clients– but there is also a lot of inaccurate information about bankruptcy on the internet.
In this post we discuss some of the most common misconceptions about bankruptcy.
Reality: People typically keep their homes and vehicles when they file bankruptcy.
If you can exempt the equity in these assets using your bankruptcy exemptions, you will likely be able to keep them when you file bankruptcy.
When a person “gives up” an asset in bankruptcy, it is often part of an overall strategy.
For example, if a person has multiple vehicles and wants to reduce monthly expenses, they might surrender a vehicle and discharge the loan as part of their bankruptcy.
Reality: Whether or not you can file a Chapter 7 bankruptcy depends on many factors. These include your income, expenses, and type of debt and amount of debt you have. It will also depend on your assets.
The bankruptcy means test helps determine whether or not a person can file their bankruptcy under Chapter 7. In the means test calculation, average monthly income is compared to a person’s living expenses.
Living expenses are limited to IRS standard values in some categories. For some categories of expenses, bankruptcy filers can use their real-life expenses on the means test.
This means high income households are often able to file Chapter 7 because they also have high expenses.
Some expenses that might enable a high income household to file Chapter 7 bankruptcy include:
Reality: Most people can qualify for conventional mortgages approximately two years after filing bankruptcy.
It is true a Chapter 7 bankruptcy can appear on your credit report for up to ten years. But, the question you really want to ask is how long bankruptcy affects your credit score.
Credit scores recover pretty quickly from bankruptcy filings, partly because zeroing out your debts has a positive effect on credit scores. This positive effect counteracts the negative credit score effects of a bankruptcy filing.
Reality: A person is not required to file bankruptcy (“join the filing”) just because their spouse has filed bankruptcy.
Whether it makes sense to have a spouse join a bankruptcy filing will depend on many factors. Examples include:
Reality: Often you can discharge taxes in bankruptcy.
To be sure, you must meet several criteria to be able to do so. But, it is possible. A large percentage of bankruptcy filers discharge taxes as part of their bankruptcy strategy.
See this post for more information: Can I Discharge Taxes in Bankruptcy?
Reality: People who file bankruptcy tend to be proactive people and long-term planners.
Sometimes they are using bankruptcy’s fresh start to help them reach their long-term financial goals.
Sometimes they already have assets or good income they need to protect from liens, levies, and garnishments.
Reality: People need to file their bankruptcies under Chapter 13 for various reasons.
For example, you might need a type of help only available in Chapter 13.
Be assured your monthly plan payment amount will still be calculated according to your ability to pay (among other factors.)
Many people in Chapter 13 have very low monthly plan payments.
Once they complete their payment plan successfully, the bulk of their unsecured debts are often discharged just as they would have been under Chapter 7.
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These are just a few of the bankruptcy myths people mention during the free initial consultation. If you have a question, don’t be afraid to ask us. Chances are other people have the same question.
To schedule a free consultation with Karen Ware, call 805-284-0760 or 818-668-9019 or use our online scheduling tool.