Bankruptcy: The Myths and Material Facts

When the laws changed in 2005, more restrictions were put in place to prevent bankruptcy abuse, including restrictions on how frequently you can receive a discharge. Dispelling some of the myths of bankruptcy is not intended to make light of financial obligations and creditors who suffer the loss of revenue from nonpayment of goods and services. Chapter 7 Bankruptcy was intended to help deserving filers, whose indebtedness is beyond their means to repay in any reasonable fashion. That’s not to say that some people, perhaps not as deserving, game the bankruptcy laws to protect their lifestyle. But for most, chapter seven can be a lifesaver.

If filing chapter seven is a lifesaver for most, then there is life after bankruptcy. After the housing crash in 2008, many decent and well-intentioned mortgagee holders filed bankruptcy. Because the housing crash was so widespread and affected so many Americans, the social stigma of filing for bankruptcy significantly diminished. So the myth that life is over isn’t true, and you can start afresh again and may experience recovery within two years. Keep in mind however, a chapter seven filing is on your record for seven to eight years.  Another myth is that chapter seven is the only solution. But filing chapter 13 could be an option that allows you to reorganize, possibly even renegotiate your debt with creditors and be selective with what debts are assigned into reorganization. Even student debt under some circumstances can be eliminated based on defining and qualifying “hardship” exemptions.

Taxes that were due more than 3 years ago, filed at least 2 years ago and assessed more than 8 months ago can be discharged. IF you have large tax debt, it is worth getting tax transcripts from the IRS to find out those numbers in order to plan the timing of your bankruptcy for discharge of tax debt.

You can’t be fired for having filed bankruptcy, but a potential employer can choose not to hire you because you have filed bankruptcy, as it may be a reflection on your financial responsibility. Some employers have requirements that you inform them of a bankruptcy if you file, but again; they can’t fire you because of it.

Don’t go it alone. Sit down with a bankruptcy attorney who can lay out all the options of debt negotiation, reorganization and chapter seven bankruptcy. This could be an opportunity to start all over again.