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Article:
Misconceptions Regarding Bankruptcy
Jacksonville Attorney - Lawyer,
providing experienced Consumer Protection, Family Law, Estate Law,
Employment Law, Business Law, and Bankruptcy Law legal
representation in Jacksonville, Hilliard, Duval County,
Nassau County and the surrounding Northeast Florida areas.
I am often surprised how many misconceptions there are
as far as bankruptcy is concerned. My paralegal and I
have put together a list of common misconceptions
regarding bankruptcy. Because there are so many, I will
make this a two-part series.
Misconceptions:
1.
The debtor must be flat broke to file for bankruptcy.
Wrong. With limited exceptions, the only requirement to
file for bankruptcy is that the debtor cannot pay bills
as they come due. A “debtor” is an individual or entity
that owes money. Most people are debtors, but not all
are bankrupt. Because individuals and businesses often
wait until they are flat broke to seek bankruptcy
advice, this delay limits their options, some of which
may help them reorganize their finances and keep part or
all of their property. For example, an individual
normally waits until the day before a foreclosure sale
to seek bankruptcy advice; had he sought advice earlier,
his chances of losing the property would have been
diminished significantly.
2.
An individual who files for bankruptcy will not qualify
for credit in the future.
Wrong. The fact that an individual files for bankruptcy
will appear on an individual’s credit report for up to
10 years. Any individual considering filing for
bankruptcy probably has poor credit already. Filing for
bankruptcy may be the best bet to “get good credit”
again, because when a debtor files for bankruptcy under
Chapter 7 of the Bankruptcy Code and receives a
discharge (relieving the debtor of the obligation to
repay most debts and preventing creditors from
collecting for the same), the debtor cannot receive
another discharge under Chapter 7 for at least six years
from the date of filing the prior bankruptcy and eight
years in most circumstances.
3.
An individual who files for bankruptcy cannot buy a
house.
Wrong. Like all lending institutions, mortgage lenders
are willing to take risks with a debtor as long as the
lender has enough security. This generally means
charging higher interest rates and requiring personal
guarantees. If a person who had filed for bankruptcy in
the past applies for a mortgage and can fund a
sufficient down payment, most banks will approve a
mortgage loan if the person otherwise qualifies.
4.
A homeowner who files for bankruptcy will lose her
house.
Yes and no. In the state of Florida, under what is
called the “homestead exemption,” an individual is
allowed to keep their home. Now consider an individual
who is behind on her mortgage, has substantial equity in
the property, and has a lot of credit card debt. In this
scenario, assuming the individual has a regular source
of income and, after paying her regular monthly bills
(i.e., mortgage payment not including arrears, food, and
utilities), any money left over can satisfy the
arrearages on the mortgage over a period of not to
exceed five years, the individual may be able to keep
the house in Chapter 13. Although Chapter 13 is
complicated, the principle is simple: As long as an
individual repays the debt or at least pays what she
would have paid in a Chapter 7 bankruptcy over the life
of the Chapter 13 plan, she can keep the property.
5.
Taxes cannot be discharged in bankruptcy.
Wrong. Some taxes are usually dischargeable in
bankruptcy, such as personal income taxes that are more
than three years old. As a general rule, fiduciary taxes
are not dischargeable. The Bankruptcy Code’s provisions
relating to taxes are complex, and differ by chapter.
It is important to always seek counsel relating to your
specific situation.
This is part II of my article on common misconceptions
as far as bankruptcy is concerned.
Additional misconceptions:
6.
Student loans are nondischargeable.
This is generally true, but with exceptions. If the
debtor can prove certain hardship, student loans may be
dischargeable.
7.
An individual can file for bankruptcy but not include
certain creditors.
This is not true and could be a violation of criminal
law and result in your discharge being denied. One
principle behind the Bankruptcy Code is to treat
similarly situated creditors equally. When a debtor does
not list a creditor in bankruptcy and decides to pay
back that creditor, that debtor is necessarily
prejudicing the other creditors. When a debtor does
this, the court usually considers this fraud, and the
debtor risks losing the discharge and, in extreme
circumstances, may face jail time and substantial fines.
8.
Family members who loaned money to the debtor will lose
out.
Wrong. Although a debtor must list all creditors in the
bankruptcy, in certain instances the debtor can repay
certain creditors after the bankruptcy is filed. This is
commonly known as a reaffirmation agreement. All
reaffirmations are subject to court approval. Most
debtors agree to pay back a debt they have no legal
obligation to pay so as to maintain an existing business
relationship. The court would probably approve the
reaffirmation if the debtor lives with the creditor and
may be forced to leave if he does not repay the debt.
9.
Signing a reaffirmation agreement stating that a debt
cannot be discharged in bankruptcy makes the debt
nondischargeable.
Wrong. Although there are extremely limited exceptions,
these bankruptcy clauses (known as ipso facto
clauses) are unenforceable and are a tactic used to
scare debtors into not filing bankruptcy.
10. A person can lose his job if he files for
bankruptcy.
Wrong. The law states that if an individual can prove
that an employer fired an employee solely because the
employee filed for bankruptcy, the employee can sue the
employer. If the debtor/employee looks for another job
after filing for bankruptcy, however, a potential
employer can use the bankruptcy filing as a factor (not
the sole factor) in deciding whether to employ that
individual.
11. Bankruptcy will Clear All of Your Debts.
While insolvency will eliminate the majority of debts
that an individual may owe, there are debts that are
exempt from Chapter 7 or Chapter 13 bankruptcies.
Amongst these, the most common debts that an individual
will still be eligible to repay are federal and specific
state taxes, student loans and any debts accrued as a
result of cases of fraud. There are particular caveats
to instances of student loans and, as such, it is always
best to consult an attorney.
Disclaimer: The above Article
is intended to give you, the consumer, insight into various legal topics. This
information is not intended as legal advice, but rather helpful topical
information.
 If
you require professional legal services regarding
Consumer Protection, Family Law, Estate Law,
Employment Law, Business Law, and Bankruptcy Law issues, be proactive in
protecting your legal
rights by seeking the legal advice of
an experienced
Jacksonville criminal defense attorney
& lawyer. Contact
The Law Offices of
Steven M. Fahlgren, P.A.,
by calling
904.845.2255.
Jacksonville Attorney - Lawyer,
providing experienced Consumer Protection, Family Law, Estate Law,
Employment Law, Business Law, and Bankruptcy Law legal
representation in Jacksonville, Hilliard, Duval County,
Nassau County and the surrounding Northeast Florida areas.
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