The stigma of filing for bankruptcy remains persistent despite the changing face of bankruptcy. Because of it, many ill conceived notions are never really rectified by bankruptcy courts. Here is what you need to know that bankruptcy courts will not tell you.
Bankruptcy filers come from all socioeconomic backgrounds
Bankruptcy can happen to anybody. There are many reasons why people file for bankruptcy and contrary to common belief, not all bankruptcy filers are poor as evidenced by the likes of Donald Trump, who has filed for bankruptcy before. Many factors can be out of your control. During an economic downturn losing one’s job without a quick recovery and hopes of finding a new one can force previous high earners into bankruptcy. Sudden illness can also be a factor for having to file for bankruptcy. So are bad investments, slumping real estate values, divorces and many other unexpected life changes.
Not all bankruptcies are created equal
It is important to understand that each bankruptcy case is different. Also, there are certain debts that will not be discharged in any bankruptcy filing such as child support, student loans or outstanding taxes. So be sure to know the advantages and disadvantages of filing for bankruptcy Chapter 7 versus Chapter 13 and how the law will pertain to your particular case. For example, if your assets include property you may be better off filing for chapter 13 if you intend to continue making payments on your home in order to keep it.
Not all is lost
Filing for bankruptcy does not necessarily mean that all assets including your home must be liquidated in order to pay off creditors. In certain circumstances you may have more leverage than the bankruptcy court will tell you. For example, if the mortgage amount of your home is higher than the current value of the home, creditors will most likely not be interested in seizing your home which leaves the opportunity open to keep it and continue making payments on it. Be sure to discuss the homestead exemption with your lawyer. The homestead exemption states, that if the equity in your primary residence is below a certain threshold (this varies from state to state), you may keep your home.
Your credit score is not ruined forever
Although filing for bankruptcy will lower your credit score and will stay in your credit report for ten years, not filing for bankruptcy and missing payments on debt could be far more damaging. Once you file for bankruptcy you have a chance to restore your credit immediately by making on-time payments on loans whereas struggling to make ends meet and not being able to afford payments to pay off debt can send you into a downward spiral indefinitely affecting your credit score negatively.
Prioritize debtors – family and friends come last
Although you may have the best of intentions by paying back your family first, this is a big misstep and will backfire since all property and monies transferred within a year of filing for bankruptcy to relatives, acquaintances, business partners or friends are recoverable by the bankruptcy trustee. Remember, all assets and everything that was sold or transferred within two years of filing bankruptcy must be listed in the bankruptcy filing. Hiding assets or lying about property can have your case dismissed and worse, land you in jail for perjury.
Bankruptcy is a new beginning – not the end
Going through bankruptcy is an emotionally straining process which affected filers paint as a hopeless and shameless act. It does not have to be. It is important to educate friends and family so they can understand what you are going through and provide emotional support to you. If you can retain a positive attitude and look at the benefits of filing for bankruptcy, you will come out of it emotionally stable knowing that this will be a new beginning and nothing to be ashamed of.
FREE BANKRUPTCY REVIEW 1-718-263-6800