A look at Filing Bankruptcy and the Most Common Misconceptions 

America, the land of the free and home of the indebted. 

According to debt.org, American household debt hit a record of $13.21 trillion in 2018. 

That’s $13,210,000,000,000 and a whole lot of Benjamin’s!

When people hear the word bankruptcy, they often think a person loses all of their worldly possessions like their home or car and are left penniless. 

But the reality is, bankruptcy is more like a divorce. Except with bankruptcy, you are divorcing your debt, and as a side benefit, you often don’t have to give up your house, car, or even your retirement.

2 Types of Personal Bankruptcy

Chapter 7 and Chapter 13

There are two types of personal bankruptcies a person can file: a Chapter 7 filing and a Chapter 13 filing. Both have an individual income, asset, and debt qualifying requirement attached. Each type offers alternatives to debt repayment and works in entirely different ways achieving the same result, debt relief.

Chapter 7 

A Chapter 7 bankruptcy filing allows a debtor to clear away most if not all of their debt repayment obligations and start anew. If you have ever heard someone say they did a complete “wipeout” in bankruptcy, they likely filed a Chapter 7. 

Contrast this to:

Chapter 13

A Chapter 13 bankruptcy filing allows a debtor to restructure their debts to help retain an asset like a home or inheritance, and attain an affordable debt repayment plan when their income is too high to file a Chapter 7. A Chapter 13 debt repayment plan typically lasts between 3 to 5 years and permits certain existing debts to be dischargeable after the plan has terminated.

In both a Chapter 7 and Chapter 13 filing, certain debts are non-dischargeable (e.g., debts that include but are not limited to: Certain IRS/State taxes, student loans, criminal penalties, and fines, child support, etc.)

Common Misconceptions of Filing Bankruptcy

Now, let’s take a quick look at the most common misconceptions related to a person filing bankruptcy; they are also the most common reasons people state they avoided seeking legal guidance and assistance for so long. 

Don’t make their mistake and get help today!

The Most Common Misconception

The Debtor filing bankruptcy is a deadbeat and financially irresponsible. 

The Reality-

People filing bankruptcy are more responsible than the debtors that don’t file and are often not the direct cause of their filings and.

Let me explain. 

Most people filing bankruptcy do so based on circumstances beyond their control (e.g., unemployment, medical illness, disability, divorce, loss of a loved one, educational purposes, etc.). 

Another common reason people file bankruptcy is a lack of financial knowledge and education. People who file bankruptcy are often from impoverished backgrounds or never took the time to learn proper financial management or decision making.

These people are NOT deadbeats; instead, they are people lacking an education who need education, need a do-over, a second chance. 

A deadbeat, on the other hand, is someone who fails to take responsibility for their financial situation. It’s a debtor who has his head in the sand.

As an alternative to seeking help, they seek out more debt as a short-term solution in hopes of buying time until a change of circumstances comes about, but that rarely happens. Instead, the debtor digs himself a bigger hole.

The non-bankruptcy filer also typically ignores their obligations and lets both their debt and bills mount until they reach the point where they are charged-off and chased into court by zealous debt collectors seeking a judgment. 

Now contrast this to:

The responsible debtor who seeks legal guidance and files for bankruptcy. 

This debtor isn’t a deadbeat; instead, they are a person taking responsibility for their indebtedness and recognizing they have a debt problem. They are also using the law, which provides them with a legal route to seek relief from their mounting bills, bankruptcy.

The people who file bankruptcy are just like you and me. They are people who have decided to confront their debt problems instead of running away from them or making them worse. They are the people who have finally reached the point of realizing they are indebted too profoundly, past the point of no return, and in need of financial relief. 

Overcoming The Stigma of Bankruptcy

Bankruptcy in 2020 is not like bankruptcy in 1990. 

There is no longer the stigma that once was so severely attached to it. People who file bankruptcy today, often remark if they had known what it was like to file or how it works, they would have done it much sooner. 

Bankruptcy today is different. Why? 

Anonymity. 

Gone are the days where your neighbor finds out about your bankruptcy through the newspaper and the whole town gossips. To find a debtor today who has filed bankruptcy, one now has to jump through an internet paywall to get to it, and even then, they may never find you.

Where to Seek Help

In Massachusetts, for example, a debt solutions attorney like Sandau Legal is an excellent first place to start. 

A debt solutions attorney is familiar with the laws surrounding debt and has access and insight into solutions that might not be known to the debtor. 

At a first visit, a debtor can expect the debt solutions attorney to provide a full analysis of their financial and debt position. Knowing this information often helps the debtor make an informed decision of the best debt repayment option to take advantage of. 

As every debtor’s debt load and the causation for debt is different, there is no one size fits all solution. A consultation with a debt solutions attorney is vital. It’s important to remember this! 

For one debtor, debt consolidation or debt settlement may be a feasible repayment option whereas, for another debtor, bankruptcy might be the best option. It all depends on a lot of variables.

Without a debt solutions attorney consultation, there is no way to determine what the “right” option may be for you. 

Misconception #2

I will lose my house, car, retirement account, and other personal effects if I bankruptcy.

The Reality-

People who file bankruptcy are surprised to learn they are often entitled to keep all of their assets, including their homes, cars, electronics, furniture, retirement accounts, and even the dog. 

Let me explain.

Bankruptcy provides a fresh financial start, a second chance, and wasn’t designed to leave a person destitute or penniless or strip a person of their worldly possessions. 

How many times have you ever said to yourself, “If only I could erase this debt and start over?” 

Well, you can! 

The bankruptcy code allows for certain monetary exemptions on both a State and a Federal level. 

These monetary exemptions include allowances for things like your house, your car, your checking and savings accounts, your 401K or other retirement accounts, and your personal effects- like your clothes, furniture, and electronics. 

These monetary exemptions allowed under U.S. Bankruptcy Code make sure that a debtor who files bankruptcy isn’t left destitute or penniless and without their worldly possessions, including Fido, the family dog.

Misconception #3

People who file bankruptcy are unable to obtain credit or buy a home ever again. 

The Reality-

People who file bankruptcy can often mortgage a home within two (2) years, secure a car loan within six (6) months of discharge and secure a new credit card within 3–6 months after the court’s discharging of the debt.

Let me explain.

Before a person files bankruptcy, they are often buried in debt, late on their payments, have low credit scores, and often no savings. They also have never filed bankruptcy before. 

The rationale is simple, a person who files bankruptcy is a better credit risk than the debtor who never acts on their debt situation.