Confessions of a Seattle Bankruptcy Attorney: 5 Myths About Filing Bankruptcy
In every day life, nobody goes into a business venture or every day life thinking that they will have to someday talk to a Seattle bankruptcy attorney, however one unplanned event can sometimes send people and families on a path to bankruptcy. Most Americans would rather not have to file for bankruptcy however, most consumers simply don’t have a lot of room for error in their monthly budget for unplanned expenses.
The Federal Reserve reported in 2016 that 46% of U.S. families said they would have trouble paying emergency expenses of $400. And a 2015 MagnifyMoney survey found 56.3% of Americans have less than $1,000 in their savings account. This means there is not a lot of room for error and one emergency room visit or auto expense or accident could send a consumer down the path to bankruptcy.
In an effort to help consumers understand all options that are available, here are 5 myths about filing bankruptcy. You can also listen to the discussion on this topic I had on the New Urban Unlimited radio show on 1150am KKNW here:
1. Say “Goodbye” To All of Your Assets….
Filing bankruptcy doesn’t mean you’ll lose everything.
If you successfully file a Chapter 7 bankruptcy, the court will appoint a trustee and you will in most cases receive relief from your debts in 90 days from filing. The trustee is tasked with reviewing your assets to determine if any of them can be liquidated for the benefit of your creditors. Most assets are protected through bankruptcy rules call exemptions, but you should talk to an experience Seattle bankruptcy attorney to make sure you are not at risk of losing anything.
But not everyone is eligible for Chapter 7. Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), an individual must make below their states median income for their family size or pass the “means test,” which determines if, according to the government, that you have other expenses that would allow you to qualify for chapter 7 when you would otherwise be above your median income. If you are below the median income you do not have to pass the means test.
Chapter 7 bankruptcy is cheaper, easier and quicker, but it doesn’t always fit everyone’s needs.
In a Chapter 13 bankruptcy, an individual sets up a three- to five-year plan, depending on their income level, to repay their creditors. All debts are reorganized and consolidated, and the filer pays a chapter 13 trustee, who pays creditors. If you’re behind on your mortgage and want to keep the bank from foreclosing on your home during bankruptcy, a Chapter 13 can help you make up your bankruptcy arrears over five years. In chapter 13 bankruptcy, assets are not liquidated.
2. “My credit will be destroyed for life.”
Yes, a bankruptcy can stay on your credit for 10 years after you successfully file. But look at it this way — if you’re facing debts so high you’re considering bankruptcy, it’s likely your credit is already suffering. And it’s going to be pretty difficult to start rebuilding your credit if you’re burdened by a large amount of debt.
A large part of your credit score is looking at the amount of unsecured debt that you have at any given time. I you have maxed out all of your cards you will never be able to improve your credit while carrying the debt load. In many cases, those who file chapter 7 bankruptcy see increases in credit the moment they get a bankruptcy discharge order from the court. While having a bankruptcy on your credit is a negative item, it may not be as bad as having several negative items reporting on your credit every month and having a high debt load.
Clients often report that after filing for bankruptcy they wish they had gone through with the bankruptcy filing.
3. “I’ll never get approved for new credit again after filing bankruptcy.”
There’s no quick fix for having a bad credit score in most cases, but that doesn’t mean that you’ll never be approved for a new credit card or home loan again. In fact it is quite the opposite after filing bankruptcy.
Many of my clients receive offers for car loans and credit cards before we have to go to court, 30 days after the case is filed. That’s because credit card companies and auto dealerships market directly to people who have filed for bankruptcy. Many of these companies can obtain your information from a list obtained from the court since a bankruptcy filing is public record.
Credit card companies and auto dealers assume people who have gone through bankruptcy have no fiscal discipline, will rack up more charges and pay more interest. Companies also know that debtors cannot file a chapter 7 bankruptcy case again 8 years since the last filing which makes it likely they will make a profit on providing new credit.
To rebuild your credit, it’s a good idea to start with a secured card if you can’t get approved for one with a reasonable interest rate.
4. “Only my co-signer filed bankruptcy, so it doesn’t affect me.”
If you’ve co-signed a debt, and the other person successfully files for bankruptcy and has their debt discharged, creditors can still come after you for the full amount. This happens frequently with spouses, ex-spouses, parents and children.
If you’re divorcing your spouse and bankruptcy is a concern, you should consider taking a domestic support obligation rather than something like a property settlement so you will not be responsible for debt associated with the property, like a mortgage.
Domestic support obligations are debts in the form of alimony or child support and are not dischargeable under Chapter 7 or Chapter 13. If your ex-spouse has has filed for bankruptcy and were supposed to be liable for a debt that was discharged, you could always have the matter heard in family court if a creditor is now perusing you for a debt that your ex spouse was supposed to be responsible for.
5. “Any Seattle bankruptcy attorney will do.”
When looking for a Seattle bankruptcy attorney I recommend working with somebody who is local, experienced in bankruptcy matters and a good communicator.
You also want someone with experience in Chapter 13 cases, not just Chapter 7 cases as you will want to know all of your options, not those just associated with chapter 13.
When an attorney quotes a fee, make sure you understand what’s included. Some attorney will quote a low fee to get you in the door but may tack on fee’s later in the representation. The court filing fees are $335 for Chapter 7 and $310 for Chapter 13.
You will also want to check and see of your attorney will appear with you in court or send someone else and it is advised that your attorney be a member of the National Association of Consumer Bankruptcy Attorney (NACBA), as it shows your attorney is in touch with the latest updates in bankruptcy law.
Your attorney will ultimately be responsible for guiding you during one of the most financially difficult times of your life, so take your time and choose wisely. Cost should be just one of the factors you consider when hiring an attorney, as you should ultimately feel comfortable with your decision as this is the person you will be working with for the next 90 days in Ch. 7 or possibly 5 years in Ch. 13 bankruptcy.
If you live in Washington State and are looking for a Seattle bankruptcy lawyer to help you get out from under your debt, give Symmes Law Group a call at 206-682-7975 to speak to a bankruptcy attorney and learn about your options.