Jenkins & Clayman invited long time Queens bankruptcy lawyer, Allan Bloomfield, to write this guest post. Allan’s Queens office is located at 118-21 Queens Blvd., #617, Forest Hills, NY 11375. His phone number is 718-544-0500.
Debunking Bankruptcy Myths and Misconceptions
In bankruptcy law there are many myths which are believed by the public, but which are either not true or only partially true. These myths can prevent people from seeking the relief they need and deserve. Many of these myths come from statements made in the media by supposedly knowledgeable financial advisors who should know better. In fact, myths that are untrue were largely to blame for convincing Congress to tighten up the Bankruptcy Law eight years ago.
Myth: You Will Lose Your Home
One common myth is that someone filing for bankruptcy will lose their house, or their car or some other piece of property that they would not want to lose. When one files for bankruptcy there is a list of items that can be kept. These items are called exemptions. Exemptions may differ from state to state because each state is allowed to set up its own list of what may be kept in a bankruptcy case. For example, under New York’s state exemptions, there is a homestead exemption of up to $150,000, while under New Jersey’s state exemptions, there is no homestead exemption. However, both states allow the debtor to use what are called the federal exemptions instead of the state exemptions, and under those exemptions, there is a homestead exemption of $22,975. So even though New Jersey does not have its own homestead exemption, a debtor can keep up to $22,975 in equity in their home.
Debtors also are usually allowed to keep their household goods and wearing apparel, a car if it is not too expensive and retirement benefits. For the vast majority of people filing for bankruptcy, they end up keeping just about everything they own.
Myth: Avoid Bankruptcy At All Costs
A second myth is that bankruptcy should be avoided at all costs. The reason this myth is harmful is that struggling for years to pay off one’s debts can mean an inability to get new credit for all of those years of struggle, plus several more years. For most people who are hit with a crisis such as the loss of a job or a medical problem, they may never be able to pay off their debts, especially if they are unable to find a new job that pays as well as the old one. For these people it can be more than a decade before all of the debts they now have are cleared off of their credit report.
For someone who struggles for years to pay off their debts, once they do pay them off, the bad news of the paid off debts will remain on their credit report for several years after they are paid off. While the fact of having filed for bankruptcy will remain on one’s credit report for 10 years, most people who file and have a steady income are able to get new credit within a few years, for while their credit report shows the bankruptcy, it also shows that they have no debts.
Myth: You Can’t File Bankruptcy With Above Average Income
Another myth is that you cannot file for bankruptcy if your income is above the median family income. The median family income is a number calculated by the government . For one person it is $47,790. For a husband and wife, it is $59,308. It then increases by about $8,000 to $10,000 for each additional member of the family.
What happens is that the family income is compared to the median family income. Even if only one spouse files, both spouses’ incomes are used in the calculation. If the family income is below the median family income, the debtor is allowed to file under Chapter 7, which means they will not have to pay back any of their debts. If the debtor’s income is above the median family income, the debtor has to then go through the “means test”. The means test starts with the family income and then allows many deductions, and if the family income then comes below a certain number, the debtor can still file under Chapter 7, which is often the case.
Only when a debtor has gone through the means test and their number is still too high, they then cannot file under Chapter 7. However, they still can file under Chapter 13, which does require debtor to pay back some, though not all, of their debts over a five year period. The amount that has to be paid back can be as low as five percent over five years. For someone who does not pass the means test because they earn too much money, there is usually enough available to make the payments.
Myth: Everyone Will Know I Filed Bankruptcy
One final myth to mention is that everyone will know you filed for bankruptcy. While bankruptcy filings are public records, someone would have to go looking for them to know you filed. Putting a name in a search engine rarely turns up a bankruptcy filing. This is because the bankruptcy court’s records are behind a pay wall. In order to look a the court’s records, one has to have an account, know where to look and pay for it. Search engines do not index bankruptcy court records.
Back before the Bankruptcy Code was amended in 2005, it was the myth of rampant bankruptcy fraud that was used to convince Congress to pass the newer, more restrictive bankruptcy law. In almost any discussion of the newer law in the media, it was mentioned that the new law was needed to clamp down on fraud. While there was fraud under the old law, it was no more than the fraud one finds under any law, and it was quite small in the case of bankruptcy. Today, fraud in bankruptcy is still present, it is still small, and it is about the same as it was under the old law.
It is important to know what is involved in a bankruptcy filing and what is myth. If you do your research on the internet, look at several sources in order to make sure you get good information. And, finally, you can always consult an attorney who practices bankruptcy law .