COMMON BANKRUPTCY MYTHS
You can file Chapter 7 bankruptcy once every eight years. If it has been less than eight years than your Chapter 7 bankruptcy but you need the protections of bankruptcy again, you may still be able to file a Chapter 13 bankruptcy. The time restrictions are looser on a Chapter 13 because while a Chapter 7 simply liquidates and discharges most of your unsecured debts, a Chapter 13 is a 3-5 year repayment plan.
You may see a slight decrease in your credit score immediately after filing your bankruptcy if you have a decent credit score. If you already had a poor credit score, you may see no change or a slight increase after filing your bankruptcy.
It is common knowledge in the bankruptcy industry that the number one reason people file is because of medical issues. Expensive doctors’ bills, combined with time off of work and possibly living off of creditors, can create a fast-track to bankruptcy for those living paycheck-to-paycheck. Such circumstances are usually unavoidable and NOT a sign of personal failure.
You can file bankruptcy singly even if you are married- but you should probably check with an attorney to make sure it is a good option for you. Arizona is a community property state, so even if you opened credit cards and incurred other debts in your name alone, your spouse could still be held liable for them. If you incurred most of your debts before the marriage, single filing bankruptcy may still work for you.
You will probably receive offers for new credit cards once your case is discharged. Once you have wiped your slate clean, creditors know you may have more funds available to open a new line of credit. Opening a new credit card and making timely payments is also a good way to rebuild your credit after the bankruptcy.
If you are interested in filing Chapter 7, there are two ways you can qualify: by making less than the median income level for your family size in your state, or by passing the Means Test. If you are using the first method to qualify, you will need to determine your family size. For the purposes of bankruptcy, only spouses and minor children count as family members, with some exceptions. Adult children and live-in partners won’t count towards your family size (but they won’t count towards your income either).
If you make above the median income level, you may still be able to qualify for a Chapter 7 bankruptcy through the Means Test. This will take mandatory deductions and expenses deemed reasonable by the bankruptcy court out of your income. If the number you have left, or your disposable monthly income, isn’t high enough to pay your debts, you can qualify for a Chapter 7. If you are unable to qualify for a Chapter 7 bankruptcy, Chapter 13 may still be available to you.
Most people considering bankruptcy don’t have that great of credit to begin with. Chapter 7 usually has a great negative impact than Chapter 13. Upon filing their petition, filers with good credit may see a decrease in their credit score. Filers with a moderate score may see little to no effect, while filers with poor credit may even see a slight improvement.
There are steps filers can take to improve their credit after discharge. When you finance a vehicle, the lender will be required to report positively. If you keep a financed vehicle in a bankruptcy, the lender won’t be required to positive report after the bankruptcy- they can, however, continue negative reporting. Opening a new credit card or a secured credit card through your bank can help your score improve as well. If you choose Chapter 7, utilizing a Zero Down payment program may also include credit reporting and help you rebuild your credit.
Bankruptcies are public record, but that doesn’t mean that filing will haunt you forever. You will be eligible for FHA loans 2 years after filing. You will receive offers for new lines of credit after your case is discharged. Chapter 7 filers may be able to finance a new vehicle before their case is even discharged. The bankruptcy will remain on filers’ credit reports for 10 years from the date of filing for Chapter 7, and 7 years for Chapter 13.
Filing bankruptcy pro se (yourself) results in a dismissal in Chapter 13 bankruptcy approximately 99% of the time. Chapter 7 pro se filers have a much better success rate, but still face a serious risk of dismissal. And just because a case isn’t dismissed doesn’t mean it was done properly- you may end up losing assets, continuing to owe some debts, or having to surrender future earnings such as your tax refund if you file without the guidance of an attorney. Unless you live entirely on social security, don’t file taxes, have ONLY Social Security funds in your bank account, don’t have significant assets, and don’t work, you should probably hire an attorney. Even if you meet all of those characteristics, you should still consult an attorney first before filing on your own to make sure there won’t be case-specific obstacles for you.
You may think you aren’t able to afford an attorney because of the exorbitant up-front retainers that many bankruptcy attorneys charge. The filing fee alone for a Chapter 7 is $335, which is not just spare change to people considering bankruptcy. That is why our office offers $0 Down Bankruptcy. This program allows you to file bankruptcy first, and pay for your bankruptcy in affordable installments after you file. The payments come with 0% interest and will be credit reported, which will make your credit score rise faster after your bankruptcy.
There is quite the difference between your debts being discharged (Chapter 7) and paying off your debts in a 3-5 year repayment plan (Chapter 13). There are other differences between the two chapters besides their basic nature. The filing fee for a Chapter 13 is $310 and for Chapter 7 is $335, but attorney’s fees are typically much higher in a Chapter 13. Chapter 13 lasts much longer- 3-5 years as opposed to 3-5 months. Chapter 13 allows you to address debts like child support arrearages and past-due car and house that you have to resolve on your own in Chapter 7.
You may think you aren’t able to afford an attorney because of the exorbitant up-front retainers that many bankruptcy attorneys charge. The filing fee alone for a Chapter 7 is $335, which is not just spare change to people considering bankruptcy. That is why our office offers $0 Down Bankruptcy. This program allows you to file bankruptcy first, and pay for your bankruptcy in affordable installments after you file. The payments come with 0% interest and will be credit reported, which will make your credit score rise faster after your bankruptcy.
If you file Chapter 7, you can keep your home if you have less equity in it than your state’s exemption limit. Houses that are above the state exemption will be sold and the excess will be contributed to the bankruptcy estate.
In Chapter 13, you are able to keep your home regardless of its value. However, if you are behind on your mortgage payments, that balance will be included in your payment plan. In some jurisdictions, your mortgage will be included in your monthly plan payment.
Unfortunately, student loans for the most part aren’t dischargeable in bankruptcy. Domestic obligations including child support and alimony are non-dischargeable as well. Bankruptcy also won’t eliminate debts incurred shortly before the bankruptcy under the presumption that you incurred the debt with the intention to discharge it in the bankruptcy.
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