There are a lot of misconceptions floating around about what bankruptcy is, what it does, and what it means.
Bankruptcy is a highly complex process that isn’t the best choice for everyone. However, in the right circumstances, filing for bankruptcy can protect those who are burdened with overwhelming debt. To make an informed decision, consult a bankruptcy attorney who can review your personal situation and explain your options in layman’s terms.
The following examples are just a few of the misunderstandings that are commonly held about this financial fresh start.
I won’t be able to keep my house if I file Chapter 7 bankruptcy.
Losing your home can happen, but it is infrequent and depends largely on the question of equity. Equity means that what you owe on your house is less than what your house is worth and it is considered to be an asset. Each state varies as to the homestead exemption amount it allows filers to claim. In Kentucky, if you are current on your house payments and do not have excess equity in your residence ($23,675 per debtor in equity), you should be able to keep the house despite bankruptcy. If you are behind on your mortgage payments, filing a Chapter 13 bankruptcy may be a better route for you.
I won’t be able to keep my car if I file Chapter 7 bankruptcy.
The same principles apply to your car as to your house. In Kentucky, if you are current on your car payments and do not have excess equity in your car ($3,775 per debtor in equity), you should be able to keep the house despite bankruptcy. If you are behind on your car payments and want to keep the car or get it back after repossession (but before a sale), filing a Chapter 13 bankruptcy may be a better choice.
Bankruptcy will ruin my credit forever.
Your credit score and your ability to get credit are two different concepts. Credit scores are assigned by credit reporting agencies based on voluntary payment history. Obtaining credit is based on the ability to make payments in the future, which actually can be increased by filing bankruptcy. Why? Because the bankruptcy eliminates many types of debts, leaving you a better credit risk. While it’s true that for 8 to 10 years your credit report will reflect the fact that you filed for bankruptcy, you can begin rebuilding credit early on. Many debtors find that they are offered secured, low-limit credit cards soon after debt discharge. By making regular, timely payments, you can build your credit and improve your credit score.
I won’t ever be able to buy a house if I file for bankruptcy.
Buying a house after bankruptcy is not impossible. Depending on a few factors, such as whether you filed for Chapter 7 or Chapter 13, you will have to wait one to four years before you can get another mortgage loan. If you use that time to keep new debt down, rebuild your credit, and save money, you will find it easier to be approved for an FHA loan (insured by the government) than a conventional mortgage loan, though both are feasible.
My spouse also has to file for bankruptcy.
A married person can file for bankruptcy individually, although there are many situations where joint bankruptcy is preferable. To find out more, take a look at our Individual vs. Joint Bankruptcy page.
Bankruptcy will erase all my debts.
Bankruptcy can provide welcome relief for those who have been struggling under the weight of unpaid bills, but there are certain debts that are not dischargeable in most circumstances. Among others, this includes debt from:
- Spousal support/alimony
- Child support
- Income taxes
- Student loans
- Fines and penalties for violating the law
- Loans owed to pension or retirement plans
- Any debt not listed in the filing papers.
I make too much money to file for bankruptcy.
It is true that you have to be able to pass a “means test” to qualify for a Chapter 7 bankruptcy if your income is greater than the median income for an equally-sized household. However, the amount of your expenditures plays a key role in whether you are eligible for a discharge. Don’t assume that it’s impossible to file if you have a decent income. Instead, consult with an attorney who may be able to show that your expenses are legitimately overwhelming.
Questions about Bankruptcy?
The Fayette County bankruptcy attorneys at Bunch & Brock can help you evaluate your current financial situation and determine the best course of action for you to consider. It can be confusing to understand the differences between Chapter 7 and Chapter 13 – or to decide if filing for bankruptcy is necessary. If you are burdened with debt, you need the calm competence of a skilled legal team in your corner. With over 35 years’ experience in handling personal bankruptcy cases across Kentucky, our Lexington-based lawyers can help you find the right way forward to improved financial stability.
For more information regarding personal bankruptcy or to schedule an appointment, contact us by calling 859-254-5522 or filling out this online form.