Why Bankruptcy Is The Most Misunderstood Law In The Country

Many Americans are deep in debt, and they may find themselves feeling overwhelmed. They may see no way of paying off their debts, and meanwhile the creditors become more and more aggressive in their attempts to collect.

And yet, they may still decide not to look into declaring bankruptcy.

Why not?

In some cases, the reason that people in debt decide not to find out more about bankruptcy is because they have misunderstandings about what happens when you file for bankruptcy.

They may even be afraid of bankruptcy because they believe it will have negative effects on their life that outweigh the benefits.

But once you find out more about the reality of filing for bankruptcy, it may turn out that you could benefit a great deal, and that many of the negative consequences you’re afraid of are myths.

On the other hand, you may think that bankruptcy is a magic wand that will solve all of your financial problems, which is not necessarily true either.

Common misunderstandings about bankruptcy

Bankruptcy Will Cause Me to Lose My House

Many people may believe that filing bankruptcy will cause them to liquidate all of their assets, including the house they live in.

Bankruptcy has different forms and the experience may be different for different people. But it’s unlikely that you will lose your house in a bankruptcy proceeding.

First, Chapter 13 debt usually results in a payment plan that allows you to repay all of your past-due debt without having to liquidate any assets.

Second, you can probably come to an agreement with the trustee about what kind of assets you will have to sell in a Chapter 7 debt.

Finally, there are certain kinds of assets that you can exempt from liquidation.

Federal bankruptcy law allows you to exempt over $23,000 worth of equity in your home. Because of all of these rules, you are unlikely to lose your home in a bankruptcy proceeding.

I Will Lose My Job If I File for Bankruptcy

Even if you know that bankruptcy would help you reduce your debt, you might be worried that filing will affect your job prospects or even get you fired.

The reality is that, while employers are able to investigate your credit history and will see a record of your bankruptcy filing, they are not able to use this information to discriminate against you. This is because federal bankruptcy nondiscrimination law makes it illegal for them to do so.

Employers are not allowed to discriminate against you in decisions about hiring, firing or promotion because of your bankruptcy status.

If you are worried about your relationship with your employer, you might even benefit from bankruptcy, since it can protect you from embarrassing garnishee orders showing up at your work.

If I File for Bankruptcy, I Will Never Get Credit

This may be the most widespread misconception of all.

Even people who are struggling with credit card debt and who can’t make their mortgage payments may worry that, by filing bankruptcy, they will keep themselves from ever getting a mortgage or credit card again.

While credit decisions on the part of lenders are complex, you shouldn’t assume that bankruptcy is the end of your credit rating.

As time elapses from the bankruptcy filing, creditors will be more and more willing to extend you credit.

Your new credit score will be lower, but it will improve if you are able to manage your payments.

Remember also that your credit rating is in danger as long as you are unable to manage your debt. Starting over may help you make your payments and start down the road to stronger credit.

Get Help with Your Bankruptcy

We have over 30 years of experience in Chapter 7 and Chapter 13 Bankruptcy in the state of New York. While our office is based in the Bronx, we serve clients throughout New York. If you need a fresh start, call today for a free case evaluation. We’ve helped thousands of families through their bankruptcy, and have provided education on credit health that they’ve gone on to use successfully for years. We can put this same experience to work for you. Call (718) 863-6000 today for a fresh start with a New York Bankruptcy Attorney you can trust.

Thomas M. Denaro
About the Author: Thomas Denaro
Thomas M. Denaro is an experienced bankruptcy attorney serving the Bronx and surrounding areas. He represents Bronx families in bankruptcy court, and has handled thousands of Chapter 7 and Chapter 13 cases from beginning to end.