There are a lot of things in life that are pretty natural and instinctive. Bankruptcy is not one of them.
As a result, people have a number of misconceptions about the bankruptcy process, such as:
1. There’s nothing I can do to stop creditors from harassing me.
FALSE. The moment you file for bankruptcy, you are protected by something called the “automatic stay.” That means no one is allowed to contact you seeking to collect debts. If they do, then they’re in violation of the automatic stay and you can actually sue that party for damages. This also applies to repossessions.
2. The new bankruptcy law makes it impossible to file for bankruptcy
FALSE. There was a lot of concern that the 2005 bankruptcy law made it more difficult for people to file for bankruptcy, and a lot of people falsely believed that the new law meant that bankruptcy simply was not an option anymore. But the reality is that it’s just as available and important an option as ever. There may be a few extra hoops to jump through, but we’ll help you navigate the process in a smooth way.
3. Filing for bankruptcy means you’re a bad person or did something wrong
FALSE. Good, decent, honest, hardworking people file for bankruptcy all the time (unfortunately). Rich people as well as poor people. The concept of debt forgiveness is included in the Bible and the U.S. Constitution. And the U.S. bankruptcy laws are there for a reason: to provide a safety net. Without it, our whole economy would suffer as people would be less inclined to take reasonable risks and try to improve their lives and their communities.
4. A bankruptcy filing will destroy your credit
FALSE. Though your credit history will reflect your bankruptcy filing, you can also rebuild your credit, as many people do successfully after bankruptcy. Plus, if your debt situation is really that bad, your credit is most likely suffering regardless of whether you file for bankruptcy or not. Bankruptcy is simply the way to acknowledge the situation, address it and start moving forward again.
5. If you file for bankruptcy, you can never file for bankruptcy again.
FALSE. While there are time limitations on the ability to file for bankruptcy more than once, you do not lose the right to file in the future just because you file in the present.
6. I’ll lose everything I own if I file for bankruptcy
FALSE. In fact, most of our clients do not lose any of their possessions. The bankruptcy laws contain “exemptions” that protect a good amount of people’s possessions. And if you’re worried that some of your important possessions may not be protected by the exemptions, if you talk with an experienced bankruptcy lawyer you can do “pre-bankruptcy planning” to make sure you get the full protection of the bankruptcy laws.
7. Filing for bankruptcy is complicated and difficult to do
FALSE. If you work with an experienced bankruptcy lawyer, it’s actually very easy and relatively painless. In fact, most cases are filed with the bankruptcy court electronically these days right from the lawyer’s computer.
8. If I file, then my wife/husband also must file for bankruptcy
FALSE. A married couple does not have to file a joint bankruptcy petition. Though it may be in their interest to do so. For example, if both spouses have debt, then they save money by only doing one filing rather than two. But there are other situations where it may make sense to file separately, such as when a debt is only in one spouse’s name. Or if one spouse has non-exempt assets in their name that they would lose if they filed jointly. The important thing is to discuss all of this with an experienced bankruptcy lawyer who will help you figure out your best approach in advance.
9. You can select the assets and debts that are listed in your bankruptcy petition
FALSE. While it may be tempting to leave some assets off the list, you MUST list all of your assets (property) and all of your debts. Failure to disclose an asset could result in a complete loss of your discharge, even after your case is over, and allow creditors to come after you again for payment. Honesty is definitely the best policy in this case. Plus, your bankruptcy lawyer can’t help you protect an asset if you don’t disclose it.
10. Bankruptcy can’t help you with tax liabilities
FALSE. In certain situations you can discharge taxes owed. For example, income taxes that are over three years old are dischargeable as long as procedures were properly followed. Also, while Chapter 7 cannot be used to discharge more recent taxes as well as sales and withholding taxes, you can get them stretched out over time if you file for Chapter 13.
If you’re considering filing for bankruptcy in Connecticut, please feel free to contact me for a free initial consultation. I’ll answer any questions you have and together we’ll figure out the best way to get you back on your financial feet again.