Falsehoods Stigmatize Bankruptcy, Which Can Be a Powerful Debt-Relief Tool
Bankruptcy can be daunting, but so is overwhelming debt, creditor harassment, and losing your home. Over the years, bankruptcy has become branded as a life-ending or even shameful practice. While it is not something to be taken lightly, filing for bankruptcy helps many people manage their debt and reclaim control of their finances.
With the right planning and legal guidance, bankruptcy can give you a fresh financial start in the state of New York. Below, we break down some of the most enduring bankruptcy myths.
Myth #1: The Type of Bankruptcy I File for Does Not Matter
The type of bankruptcy you file absolutely does matter, and in most cases, you will likely only qualify for one of the two consumer bankruptcy types. Chapter 7 bankruptcy is primarily intended for those who do not have a great deal of assets and is colloquially referred to as “liquidation” bankruptcy. It is a generally shorter process than other types of bankruptcy and may involve “liquidating” some nonexempt assets to repay debts.
Chapter 13 bankruptcy is meant for those who still have a steady income and can work to repay debts through a reorganized, court-approved payment plan. It is usually a significantly longer process than Chapter 7, with the repayment period lasting anywhere between 3 and 5 years.
Both Chapter 7 and Chapter 13 bankruptcies allow you to discharge certain types of debts at the end of the process, which is a huge advantage to filing. Though you may have also heard about Chapter 11 bankruptcy, it is intended for businesses, not individuals.
Myth #2: Bankruptcy Will Permanently Ruin My Credit
If you are in a financial scenario where you are contemplating filing for bankruptcy, you probably do not have a great credit score to begin with. Failing to address mounting debts can only worsen your score, while filing for bankruptcy can in many situations mark the first step in rebuilding your credit. You will have to initially suffer some of the consequences that a low credit score brings, but reliably making payments going forward can help restore good credit. Steady income and payments become more possible once you have successfully managed your finances, which in some cases can be enabled through bankruptcy.
Myth #3: Bankruptcy Will Always Be on My Credit Score
This is patently false. A Chapter 13 bankruptcy will only remain on your credit report for 7 years, while a Chapter 7 bankruptcy stays for 10 years. These numbers can be intimidating, but generally, you can begin rebuilding your career after 2-4 years so long as you stay on top of your bills. Remember, while temporarily having poor credit can limit your ability to take out loans, you will still be able to purchase the goods and services you need to live your life.
Myth #4: Bankruptcy Means I Can Never Finance Anything Again
This is also untrue. Though your credit score will take a hit as a result of your bankruptcy, it is important to again emphasize that this damage does not have to be permanent. You should not expect to finance a car or home in the first few years following your filing, but many bankruptcy filers are eventually able to overhaul their credit and subsequently qualify for financing on large purchases. It may be possible to finance something sooner with the right lender, but keep in mind you will likely be subject to less favorable terms, including higher interest rates.
Myth #5: I Will Lose All of My Property After I File for Bankruptcy
Filing for Chapter 13 bankruptcy does not involve giving up or losing any of your assets. Chapter 7 bankruptcy does involve a process called liquidation, which will typically mean some of your assets and property get converted into cash to repay debtors. However, a bankruptcy attorney can help you strategize to protect and limit the assets liquidated, as some asset categories are exempted from any liquidation. In some cases, retaining the services of an experienced bankruptcy attorney can result in filers losing no assets at all. Even in a worst-case scenario, bankruptcy regulatory protections ensure filers retain assets essential to living their lives.
Myth #6: Creditors Will Still Harass Me After I File for Bankruptcy
This is blatantly untrue. Filing for Chapter 7 or Chapter 13 bankruptcy will prompt a bankruptcy court to issue an “automatic stay.” This order bars collections agencies or any other creditors from contacting or harassing you about debts. The automatic stay takes effect as soon as it is issued and can also be used to halt foreclosures on your home or other property.
Myth #7: My Spouse Will Also Have to File for Bankruptcy
This is not necessarily true. Even if you are married, you and your spouse are not obligated to both file for bankruptcy. However, these situations can be more complex, as some of your assets may be linked or joint owned, potentially affecting the liquidation process in Chapter 7 bankruptcy. Your spouse’s income could also impact the amount you are expected to pay monthly in a Chapter 13 bankruptcy. An experienced bankruptcy attorney can evaluate your complete situation and determine the most advantageous course of action, including taking steps to preserve assets.
Myth #8: I Can Only File for Bankruptcy Once
Though hopefully you will only have to file for bankruptcy a single time, should you find yourself facing excessive debts a second time, there are options available. If you have filed for Chapter 7 bankruptcy before, you must wait 8 years before filing Chapter 7 again or 4 years until you can file for Chapter 13 bankruptcy. (Remember there are eligibility requirements, including income, for each type of consumer bankruptcy, so do not assume you can automatically file for both!)
If you have previously filed for Chapter 13 bankruptcy, you must wait 2 years before filing for Chapter 13 again. Alternatively, you will have to wait 6 years to file for Chapter 7 bankruptcy if you previously filed for Chapter 13.
Myth #9: Filing for Bankruptcy Means I Have Failed or Am a Bad Person
This is not true. Bankruptcy is a completely legal means of controlling your debt, and while third parties may misunderstand the intent and mechanics of the system, you should feel no shame in exercising every financial management tool available to you. Nobody wants to end up in a situation where bankruptcy is necessary; remember, excessive debt often develops through no fault of your own, whether it be through unexpected medical bills, a divorce, or income loss. Filing for bankruptcy helps you regain control of your financial situation and consequently your life.
Myth #10: I Do Not Need an Attorney to File for Bankruptcy
It is possible to file for either Chapter 7 or Chapter 13 bankruptcy on your own by filling out and filing the necessary paperwork and representing yourself in court. However, the bankruptcy system can be complex, and it is easy to make errors in your filing that can have drastic, adverse effects on your finances. An experienced bankruptcy lawyer can help you avoid common pitfalls, assist in making sure all applications are appropriately filed, strategize on how to best preserve your assets, and more.
At the Law Office of Phillips, Artura and Cox we can evaluate your financial situation and determine if bankruptcy is the right choice for you. You will work directly with Richard Artura, the principal attorney at our firm, who will help you understand all of your legal options so you can make an informed decision. Retaining our services means putting a respected and passionate legal advocate on your side as you fight for a fresh financial future.