Common Myths About Bankruptcy
Most people facing financial problems are hesitant to file for bankruptcy. For many of these people, what they have heard or think they know about bankruptcy is enough to keep them from contacting a bankruptcy attorney to understand their options. However, our New Jersey bankruptcy attorneys work hard to educate potential clients about their debt relief options and dispel common misconceptions about bankruptcy laws.
Myth: The only way to stop creditor harassment is to pay off my debt.
Reality: Once you file for bankruptcy, there is an automatic stay order that requires all creditor activity to cease during bankruptcy proceedings — including debt collection phone calls, demand letters from creditors, mortgage foreclosure, repossession, debt collection litigation and other activities.
Myth: I can eliminate all of my debt through bankruptcy.
Reality: While bankruptcy can relieve your financial obligation to pay certain debts such as medical bills, unsecured personal loans, personal judgments, credit card debt and other liabilities, bankruptcy cannot discharge all consumer debts. For example, child support or alimony obligations, back child support, student loans, certain back taxes and other certain delinquencies are ineligible for discharge under the Bankruptcy Code. However, the obligations can be consolidated into your repayment plan under a Chapter 13 bankruptcy.
Myth: If I file for bankruptcy, I will lose all my property and assets.
Reality: Although Chapter 7 bankruptcy is commonly known as bankruptcy liquidation, even in a Chapter 7 bankruptcy, you may be able to keep most of your assets. State and federal asset exemptions allow individuals to keep certain assets, such as qualified retirement plan assets, a certain amount of home equity (homestead) and other personal assets up to a certain amount. If you have assets that are not exempt and would be liquidated in a Chapter 7 bankruptcy, we can evaluate if Chapter 13 bankruptcy would be a more appropriate debt relief solution. In a Chapter 13 bankruptcy proceeding, your debts will be consolidated into a manageable repayment plan, allowing you to keep your home and other secured property.
Myth: If I negotiate a debt settlement with my creditor, I don’t need to worry about the debt in the future.
Reality: Debts that are forgiven in a creditor workout can actually create tax liability in the future. Money that is forgiven may be considered untaxed income by the IRS. If you negotiate a workout with your creditors, you will be required to complete IRS form 1099 in the next tax year and you may face additional IRS debt. However, debts discharged through bankruptcy proceedings do not impose additional tax liability.
Myth: Once my bankruptcy appears on my credit report, I won’t be able to obtain credit.
Reality: Yes, bankruptcy accounts will appear on your credit report for a number of years (up to seven years following a Chapter 13 bankruptcy and up to 10 years following a Chapter 7 bankruptcy). However, many factors are considered by lenders when deciding whether or not to approve credit. Lenders may consider the length of time since the bankruptcy was filed, your financial stability since the bankruptcy, current income and liabilities, and other information. It is important to realize that not filing for bankruptcy can also have a damaging impact on your credit score as accounts default, repossessions commence, foreclosure proceedings move forward and other detrimental debt concerns get out of hand.
Myth: Filing for bankruptcy means I’m too lazy to work at paying off my debts.
Reality: It is common for people with financial troubles to feel as though they are a failure for not being able to keep up with debt. However, most people who file for bankruptcy are in the position they are in due to a serious life experience that dramatically impacted their finances, such as a divorce, a serious injury or illness, job loss, a cut in hours or pay, a judgment rendered against them, or another life experience that put pressure on the family’s budget. Bankruptcy laws were established to protect consumers like you during these difficult times.
Contact Our Essex County, New Jersey, Bankruptcy Lawyers
At Minion & Sherman, we confront bankruptcy myths head-on. We advise clients of their rights and help them move forward into a financially stable future. We understand that hiring an attorney is a very important decision, especially during such a difficult time. Our New Jersey law firm offers free initial consultations and night/weekend appointments for all new clients. Contact us for experienced legal counsel in Essex County, Passaic County and Morris County. Call 973-559-5791 today.
We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.