What Are Some Common Concerns About Chapter 7?

The immediate concern is that people think they will lose everything in a bankruptcy. The idea behind the bankruptcy is to give people a “fresh start”. To make a fresh start, the person will be allowed to keep a certain amount of property, but obviously they cannot keep millions of dollars and not pay their creditors. That would not be fair to the creditors. It is a balancing act. The person is allowed to keep something to make a fresh start with, but the creditors are allowed to get paid if there are a lot of assets. You see celebrity bankruptcies where they auction of all the jewelry and cars that the celebrity owns, but that happens in those kinds of cases. Most people would not lose anything in a chapter 7 bankruptcy and they would be able to keep their cars, their household goods, their tax refunds, their pensions, their 401ks and those kinds of things. People are manly afraid of losing everything so we have to reassure them that they will not lose anything in a bankruptcy.

What Are Some Of The Biggest Misconceptions People Have About Chapter 7?

The first misconception is that the person will lose everything they own, but it is the job of the bankruptcy attorney to protect assets in a chapter 7. Generally people do not lose anything that they did not want to lose in a bankruptcy.  The second misconception is that the person’s credit will be ruined.  The reality of the matter is that by the time the person sees a lawyer, their credit is already ruined so the bankruptcy actually improves it. The third misconception is that the bankruptcy will be public information. Nobody will know that the person is filing bankruptcy unless they are extremely curious or the person himself tells them. The fourth misconception is that the person will never be able to get credit again whereas that is not true. The person would definitely be able to buy a car or a house after filing a bankruptcy.

Do Employers Get Notified About The Bankruptcy?

The only way an employer would probably know about a bankruptcy is if the person’s paycheck was being garnished. The lawyer would have to call the payroll department to tell them to stop the garnishment because the person had filed a bankruptcy. If the paycheck was not being garnished there would really be no reason for an employer to ever know about the bankruptcy unless the person mentioned it themselves. Payments have to be made through wage order when we set up payment plans for a chapter 13, in which case, the HR department would know about a chapter 13 wage order. But payroll information and employment information is supposed to be confidential. If the person worked for a big company, the HR department would know about it but probably no one else, certainly not co-workers unless they were told. If someone worked for a company of 5 or 10 people, then people will talk and it may not be such a confidential matter, but in a chapter 7, unless the person tells their boss themselves, they would probably never know about it.

How Public Or Private Is A Chapter 7? Will The Person’s Name Be Published Somewhere?

Chapter 7 cases are generally not published anywhere. Obviously all kinds of things can be found out about anybody with the internet and Google if someone really went looking for it, but if someone filed a bankruptcy, their neighbor, boss or coworkers would probably not know about it unless the person mentioned it to them or unless they had some reason to go searching around and investigating their background. For the most part, no one would ever know that the person filed a bankruptcy.

What Is The Most Difficult Thing For Someone To Deal With For A Chapter 7?

The number one thing people feel about a chapter 7 is guilt about not paying their creditors. Nobody wants to file a bankruptcy and a person should not file a bankruptcy unless it is a last resort. A lot of people are very emotional and get very upset that they are filing a bankruptcy because they feel like somehow they have failed and should be paying their creditors. The reality is that the bankruptcy law is there for a reason. It allows people to make a fresh start so there is nothing illegal about bankruptcy. There is nothing immoral about filing a bankruptcy. Even in the Bible, they would wipe out everyone’s debts every 7 years, so there is a religious basis to it. There is certainly nothing to be ashamed of when making a fresh start and doing what is best for themselves and their family and moving forward to the future.

What Are The Major Differences Between Chapter 7 And Chapter 13?

A chapter 7 would probably be preferable if a person was current with their mortgage or they did not own a house and had a lot of debts but were otherwise qualified. Most people just want to get rid of all their debts and move on with their lives. The chapter 13 would be preferable if someone was behind on their mortgage and their car payments and was trying to hold on to them. A payment plan could be set up to help the person catch up on the mortgage and car payments. If the person has assets that cannot be protected in a chapter 7, then a chapter 13 can be filed because it does not matter what the person owns in a chapter 13, they would not be losing anything and would just be reorganizing their debts and payments. A chapter 13 can be filed if someone had filed a chapter 7 within the last 8 years and their creditors were coming after them. It would get the person under the protection of the automatic stay even if they had filed a chapter 7 within last 8 years. A chapter 13 can always be filed if a person’s income is too high to qualify for chapter 7, so that a payment plan can be set up to pay off the creditors that way.

How Does It Work For Married Couples?

Only married couples can file a joint bankruptcy case. Someone with a fiancé would not be able to file a joint case. In a joint bankruptcy case, the exemptions are doubled so instead of $12,000, they can protect up to $24,000 worth of property. Joint bankruptcy in Maryland also has something called the Tenants by the Entireties, which is a way to protect property owned by married couples from the creditors of only one person. The idea is that the husband and wife is a special entity so if the husband or the wife goes out and runs up debts, the marital entity should not suffer because one or the other ran up debts. Only creditors of both the husband and the wife can go after the property that is jointly owned in a chapter 7.

We file individually if only one spouse has a lot of debt, even though they are married. Just because they are married does not mean they need to file a joint case. They should only file a joint case if both spouses have a lot of debts, otherwise it would be a waste for the spouse without any debts to file a bankruptcy. If a couple is separated but not divorced, they can still file a bankruptcy without including the spouse. This is a fairly common situation because unfortunately, debt, in many cases, leads to a stress in a relationship. There have been a lot of cases where people file bankruptcies and it actually repairs their marriage because the stress of all the creditors calling and harassing was gone and the people were able to focus on their families and their relationships, which is another positive benefit of bankruptcy. If a couple has joint debts, then if one spouse files a bankruptcy the remaining spouse will still be liable for the joint debt if they do not do a joint case, just like any co-debtor.

Is There Anything Else You Would Want To Mention About Chapter 7 Bankruptcies?

The main thing is that the client needs to make sure they talk to an experienced bankruptcy attorney and they need to make sure they disclose all of their assets, so that the attorney can protect them. Also, someone with debt problems should talk to an attorney and see if there are any non-bankruptcy options available as well.

For more information on Common Misconceptions, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by calling 443-860-0088 today.