Bankruptcy, like many other areas of the law, can be intimidating to some and unthinkable to others. In this digital age that we live and operate in there are a lot of places that one can find information and opinions. The purpose of this piece is to address some bankruptcy misconceptions that have arisen from speaking with clients over my many years of practice in this area of the law. My hope is to separate fact from fiction. The following discussion will address the top misconceptions of bankruptcy and filings in the State of New Jersey as bankruptcy laws can and will vary from state to state.
1. Your Credit is Gone for Good
One of the first bankruptcy misconceptions that clients hold is their concern that they will be unable to secure credit in the future or ever be able to purchase a home or a car following a bankruptcy filing. This is simply not true.
Offers for credit will resume and in many instances, within only a few months after one’s filing. While it is true that any such offers may come with a higher than usual interest rate, the credit offers will come.
I normally suggest to my clients that they wait one (1) year following their filing to attempt to purchase an automobile and two (2) years following their bankruptcy filing to attempt to purchase a home.
2. All Credit Must Be Exhausted Before Filing Bankruptcy
Another misconception regarding bankruptcy concerns one’s use of their lines of credit prior to filing. Put another way, some clients seem to think it is fine to “run up” their charge cards and other lines of credit prior to filing. This is not appropriate and can be deemed as fraudulent.
The general rule of thumb for debts in bankruptcy is that they can and will be discharged. This means the individual is no longer legally responsible to pay the debt(s). Creditor’s, however, can sue someone within the bankruptcy court system and argue that either all or a portion of their underlying debt is non-dischargeable.
Generally, in the ninety (90) days prior to filing one should not charge more than $500.00 on any one line of credit for luxury goods or services. Cash advances in excess of $750.00 in the seventy (70) days prior to filing can and likely will lead to creditor issues within one’s bankruptcy.
The less activity on the lines of credit prior to filing, the better the chances of the case proceeding without any issues. Remember, bankruptcy relief is afforded to the unfortunate and innocent person who has fallen on difficult times.
3. Not Every Debt and Asset Needs to Be Listed
Another bankruptcy misconception many people have is they can pick and choose what debts are included in their petition and which assets they want listed in their petition. All assets and all debts must be included in the filed petition.
If you have a credit card that has no balance at the time of filing, it does not have to be listed in your petition because without a balance it is not actually a debt. If that same credit card had a $10.00 balance at the time of filing, it would need to be added to one’s petition.
No individual has the right to pick and choose what creditors or assets will be listed within their bankruptcy petition.
Frankly, if one files for bankruptcy and fails to list a card with a nominal balance, the credit card company will ultimately learn of the filing and cancel the card. Less is more, both in life and prior to one’s filing.
Assets must also be listed, whether they are subject to a lien (loan or lease) or fully paid off. It is the job of your counsel to fully divulge all assets, assign fair and reasonable values to all such assets and to protect the assets for their client(s) through the use of bankruptcy exemptions.
In most instances, there is no problem in protecting all of one’s items of value within the body of their petition.
4. Bankruptcy Also Hurts Your Spouse
Another misconception concerns spouses and the need for one or both having to file. No one is required to file a bankruptcy petition because they are married or because their spouse is going to be filing for bankruptcy.
In some instances, a vast majority of the entire household debt is only in the name of one spouse. If that is the case, there would be no need for the other spouse to file. If, however, a majority of the debts are joint or both spouses have a significant amount of debt in their respective names, it would then be appropriate for both spouses to file for bankruptcy.
Even if only one (1) spouse files, however, the non-filing spouse will still need to provide proof of income, tax returns, and the like so the filing spouse’s bankruptcy petition schedules can be properly and fully completed by legal counsel.
5. You Will Lose All Your Property
A lot of people are fearful of a bankruptcy filing as they believe they will lose all of their property and belongings. The concern is they will be left with nothing and will have to start their life all over again. This is simply not the case. In New Jersey, different types or categories of both real and personal property have different amounts (monetarily) that can be protected.
In a vast majority of cases, my clients are able to exit bankruptcy with all of the property they entered their bankruptcy with. A knowledgeable attorney will carefully go through all of one’s assets and fully protect them with what are called “exemptions”.
A well-seasoned attorney will be able to advise almost immediately if the value of a particular asset or assets will be a problem protecting within one’s bankruptcy petition.
6. Your Bankruptcy Will Be Widely Published
Many people are of the misimpression that once they file for bankruptcy they will be published in some sort of paper and all of their friends and family members will learn of their filing. In New Jersey, the only publications noting bankruptcy filings have dealt with business’. Tens of thousands of individuals file for bankruptcy each year and none need to fear ending up in a newspaper or periodical.
While bankruptcy filers are part of a public record, the only parties that will actually receive formal notice of one’s filing are the creditors of the party filing and not the general public at large.
7. Bankruptcy Filing is a Difficult Process
Bankruptcy is not as hard to file as many people think. In my office, I currently meet with a client on three (3) different occasions with the initial appointment being the longest at approximately sixty (60) to ninety (90) minutes in duration. This is where the assets and liabilities are gone over and the client is provided with a list of any additional items that will be needed to complete our thorough evaluation.
The second appointment will customarily last between thirty (30) and forty-five (45) minutes.
The third appointment is the signing appointment at which point the bankruptcy petition draft is gone over and any necessary changes are made. This appointment usually lasts sixty (60) minutes. All of our appointments are conducted by the attorney.
8. All Debt Will Be Discharged
Another misconception in bankruptcy concerns the types or kinds of debts that can be wiped out or discharged. Domestic support obligations such as alimony and child support cannot be extinguished as a result of a bankruptcy filing.
Student loans, however, can be discharged but only after several factors have been met and generally only after a trial has taken place before the bankruptcy court. Generally speaking, one who enters bankruptcy with a student loan will exit their bankruptcy with that same student loan.
The general rule of thumb is that one’s debt will be discharged. However, depending on how the debt was incurred can impact the ability to discharge the obligation.
A debt incurred by and through fraud will remain the responsibility of the bankruptcy filer if the Bankruptcy Court finds the debt arose through fraudulent conduct or other form of fraudulent communication. Fraudulent conduct would be deemed an “exception” to discharge.
Other exceptions to the general rule of discharging debts are fully noted within section 523 of the United States Bankruptcy Code.
It is important to find an attorney who is willing to take the time to go over the past history of all debts to see if any of the “exceptions” to discharge come into play prior to any filing.
Credit cards, medical/dental bills and personal loans can all be discharged in a bankruptcy.
You may also walk away from your legal responsibility to pay for automobile loans/leases and mortgages in a bankruptcy. However, if you walk away from these types of secured debts you will not be able to keep the asset.
9. You Can Only File for Chapter 7 Bankruptcy Once
Just because someone has filed for bankruptcy in the past does not mean they can never file for bankruptcy relief again in the future. An individual who has received a discharge in a Chapter 7 within the past eight (8) years cannot receive another Chapter 7 discharge.
The individual must wait until eight (8) years from the date of their prior Chapter 7 filing until being able to receive another Chapter 7 discharge. This is governed by section 727(a)(8) of the Bankruptcy Code. Section 1328(f) of the Bankruptcy Code prevents a person who is filing a Chapter 13 from receiving a discharge if the individual receives either a Chapter 7, 11 or 13 discharge during the four (4) years proceeding the pending Chapter 13 petition date or received a Chapter 13 discharge within two (2) years before filing the pending Chapter 13 petition.
As you can see, a person can file for bankruptcy relief on more than one occasion. However, the time which has passed since the last filing date will determine when and what chapter one can ultimately file under.
While a bankruptcy can be filed without the aid of counsel, you can see from the information contained in this blog that this area of the law can be complicated and intricate. I have seen many individuals attempt to proceed on their own (referred to as pro se) and have witnessed their problems first hand. It is always best to proceed with the aid and direction of legal counsel.
At Reinheimer & Reinheimer we handle our cases with a personal touch. We understand while this is our file, it is your life. The misconceptions addressed within this blog are only but a few of the many that exist. Let us guide you through the process and separate the fact from fiction. Our bankruptcy consultations are completely free. Give us a call and take back control of your life.