Bankruptcy Fact and Fiction
Straight Answers From an Experienced Virginia Bankruptcy Lawyer
Some people put off bankruptcy because of misinformation. For example, there is a widespread misconception that Congress eliminated Chapter 7 bankruptcy when it changed the laws in 2005. Not true! Many people who would have qualified before are still eligible to eliminate debts.
I am Nathan Baney, an attorney who has helped hundreds of people save their homes, end creditor harassment and put the pieces of their lives back together by discharging debt. I practice in Alexandria, Fairfax and throughout northern Virginia and Washington, D.C.
Read below for the truth about common bankruptcy myths, and call me at 571-482-7358 for a free consultation. I handle Chapter 7 bankruptcy, Chapter 13 repayment plans and solutions for small businesses in debt.
1. If I declare bankruptcy, my credit score will be ruined for ten years.
Wrong . First of all, your credit rating is probably very poor already if you are carrying high debt and paying bills late. Bankruptcy does have a short-term impact on your credit score and ability to borrow. But many people find that within two years after filing, their credit rating improves to a good or excellent level.
Yes, a bankruptcy is listed on your credit report for ten years, but as time goes by it matters less and less to lenders or anyone else. As you rebuild credit by paying bills on time, you will soon be a candidate again for credit cards, car loans and even a mortgage.
2. I need to be broke to file bankruptcy.
False . If you see financial hardship in your future, proper planning early in the process will help you avoid the stress of dealing with lawsuits, garnishments, judgments and harassment by collection agencies.
3. I need to be unemployed to file for bankruptcy.
Not true. You need income to meet living expenses whether in or out of bankruptcy. One of the purposes of the bankruptcy process is to get a fresh start, and having a source of income is an important part of that process.
4. Filing for bankruptcy won't stop a foreclosure.
False . Filing for a Chapter 13 bankruptcy immediately stops foreclosure, and gives you an opportunity to strip off a second deed of trust (second mortgage) if the value of the house is less than the first deed of trust (first mortgage). In a Chapter 13, you pay back the arrears (missed payments) and penalties on the first deed of trust, spread out over five years.
The bank or mortgage company can re-start foreclosure only if you stop making your house payments during your Chapter 13 plan.
• See Saving Your Home From Foreclosure.
5. I can preserve my credit score and avoid bankruptcy through a debt settlement company.
Bad strategy. Working with a debt settlement company will usually hurt your credit score, because your past due balances often increase during the process, and the debt settlement itself results in companies "writing off" a portion of your account, both of which have a negative impact on your credit score.
Many people end up getting sued by the credit companies anyway, and then have to turn to the bankruptcy process — but only after wasting thousands of dollars on debt settlement and living through the stress of credit company harassment.
6. It is better to cash in a retirement account than go into bankruptcy.
Wrong ! These funds are protected in bankruptcy, and you will face taxes and penalties if you tap the money to pay debts. Speak with a bankruptcy attorney before unnecessarily wasting money you can protect and will need to depend on in your later years.
7. If I file bankruptcy, everyone will know.
Not true. While Bankruptcy Court records are public, few people regularly read the new bankruptcy filing notices. With the number of bankruptcy filings across the nation now at records levels, it's likely that one of your friends or relatives or co-workers has filed for bankruptcy in the last year without you ever hearing about it.
8. I will lose my apartment if I file for bankruptcy.
False . Most standard lease contracts contain a clause that says you will be in default of the contract upon the filing of a bankruptcy. These "ipso facto" clauses are unenforceable! You will not lose your apartment simply by filing for bankruptcy protection. There are important steps you must take if you are behind in your rent when you file, but your landlord will not be able to evict you if you take the proper steps.
9. I am a failure if I file for bankruptcy.
False . There are many individual circumstances that can lead us each to financial hardship. Health problems, job loss, family problems, bad investments and tax problems are commonly the root of financial problems leading up to bankruptcy. Many famous and successful people have been bankrupt, including corporate kings H.J. Heinz (of Heinz ketchup), Henry Ford and Donald Trump; presidents Abraham Lincoln, William McKinley, Ulysses S. Grant and Thomas Jefferson (before and after his presidency); and entertainment giants Walt Disney and Larry King.
10. I can't afford a bankruptcy attorney.
False . There are many ways you and your bankruptcy attorney can work out payment issues. For example, in a Chapter 13, most of your payments to your attorney can be made through your Chapter 13 plan at no additional cost to you, depending on your individual circumstances.
Don't Fall for Bankruptcy Myths
When you read or hear information about bankruptcy:
1. Consider the motives of the author or speaker. The least biased source for information about bankruptcy is the Bankruptcy Court itself and the U.S. Bankruptcy Code. The court has published helpful information about the bankruptcy process at:
http://www.uscourts.gov/bankruptcycourts/BB101705final2column.pdf
Additionally court opinions in the Eastern District of Virginia can be found at http://www.vaeb.uscourts.gov/dtsearch.html.
These court opinions and general bankruptcy principals are discussed in greater details at www.alexandriabankruptcylaw.com, a blog devoted to research of local court opinions and interpretations regarding the bankruptcy code and rules.
2. Question the use of absolutes ("always" and "never").
As in all areas of law, there are exceptions and important ramifications to be considered that may not be apparent. It is important to discuss your individual situation with a bankruptcy attorney who can review the facts and discuss the options available to you to determine the best course of action for you and your family.
3. Be skeptical of anything you hear that does not come from a judge or your bankruptcy attorney.
Bankruptcy is complicated. Many sources attempt to distill a complicated concept or idea down to a "one-liner." Bankruptcy is an intricate area of law that requires in-depth knowledge and analysis that a form book writer, journalist or other commentator does not have the experience or time to perform.
4. Question any source that promises something that is too good to be true.
Any source that promises you something for nothing or offers unrealistic guarantees should be questioned. You do not have a "right" to modify your mortgage, nor a "right to be debt-free." What you do have is the ability to discharge or modify that debt in a bankruptcy, but you should speak with an attorney who can help you determine the extent you are able to do so. Be skeptical of anybody or anything that promises otherwise.
Nathan D. Baney, Attorney at Law, provides a free initial consultation, including evening or weekend appointments. We can meet at my law office in Alexandria, or I can travel to your location.
Under the current Bankruptcy Code, I am classified as a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code.
