Don't Believe Everything You Hear About Filing Bankruptcy

by Michael Sosna

A lot of our clients tell us they were reluctant to file bankruptcy because of what they'd heard - and usually what they were told was wrong!

Sometimes folks, without any expertise, think they know enough about bankruptcy to give others advice, but unfortunately most of the time the information they offer is incorrect.

The very best way to learn about bankruptcy and have your questions answered is to speak with an experienced bankruptcy attorney, such as the two at Sosna Law Offices, PLLC, where the initial consultations are free.

Here are some of the questions that we hear:

WILL MY NAME BE IN THE NEWSPAPER?

No, bankruptcy cases are not reported in the newspaper. While some papers publish cases from state court - like DWIs and other traffic offenses - bankruptcy cases are filed in federal court and are not reported in the local papers.

WILL I HAVE TO GO BEFORE A JUDGE?

Usually, no. Initial proceedings in your bankruptcy case are before a Trustee in a meeting room at the bankruptcy courthouse, not in a courtroom before a Judge. As long as you provide accurate information to your attorney and to the Court and follow other instructions (for example, making your Chapter 13 payments on time), you generally will not appear before a judge in your case.

WILL I BE ABLE TO BUY ANYTHING OR REFINANCE A DEBT WHILE I'M IN BANKRUPTCY?

Yes, in most cases. Many of our clients purchase vehicles or obtain mortgage modifications during their bankruptcy case. The only thing you must do in a Chapter 13 is obtain permission from the Court for a purchase or refinance; the Court normally grants permission as long as the transaction is necessary and reasonable.

WON'T I LOSE MY CAR OR HOME IF I FILE BANKRUPTCY

No. Many people, burdened by credit card debts and/or medical bills, think they cannot file a bankruptcy to discharge - eliminate - those debts without losing their home or vehicles or other property. This is incorrect. Bankruptcy law allows you to protect - it's call exempting - a certain amount of value or equity in your home, your vehicles and other property, which protects the property from the claims of creditors. In most instances, people filing bankruptcy can exempt - and therefore keep - all of their real and personal property, as long as you continue to make any payment associated with the property, such as a mortgage payment, car payment, furniture payment, etc., either through your bankruptcy case or directly. Exemptions are covered more fully in the article entitled "Will I lose my property if I file bankruptcy?"

DO I MAKE TOO MUCH MONEY TO FILE BANKRUPTCY?

In most cases, the answer is no. But it may affect the type of bankruptcy you file. (Read our article entitled "What is the Difference between Chapter 7 and Chapter 13?" for more information about the two primary types of bankruptcy our clients file.)

In Chapter 7 cases, your household income must be below a certain level in order to qualify for a Chapter 7 bankruptcy. There is a calculation, called the "means test" that determines whether a filer is above or below the median - or midpoint - for a household of that size in North Carolina.

Even those debtors whose household income is above the median income level may still file a Chapter 13 bankruptcy. These debtors are able to discharge the unsecured debts (credit cards, medical bills, etc.) they sought to discharge in Chapter 7, often with very little payment to those creditors - by payments stretched over three to five years - and sometimes with no payment at all.

Some people want to file Chapter 13 to begin with - for example, if they are behind in their mortgage or vehicle payments. There is still an income test in Chapter 13 which determines whether any payment must be made to unsecured creditors, but if the household median is below the median generally no payment will be required.

WON'T FILING A BANKRUPTCY RUIN MY CREDIT?

Obviously, each individual case is different. But the answer is generally no. Our experience is that people who file bankruptcy can usually obtain credit, although sometimes the interest rate is higher. After their Discharge is entered, almost all of our clients receive solicitations from vehicle dealers ("let us help you rebuild your credit by financing the purchase of a vehicle with us") and from credit card companies offering a new credit card.