Debunking Four Common Myths about Bankruptcy
Many people who have staggering debts endure aggressive debt collection tools that include wage garnishments, bank levies, real estate liens, creditor lawsuits and other oppressive debt enforcement practices. When debtors endure these types of tactics by aggressive debt collectors, these harsh collection methods can seriously impact a family’s standard of living. Many people tolerate these financial hardships because they are hesitant about filing for bankruptcy. There are many myths that discourage people from seeking bankruptcy relief. This blog post attempts to dispel four common misconceptions about bankruptcy.
Myth #1: Few people can qualify for a Chapter 7 discharge because of the bankruptcy reforms that adopted means testing.
Although the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created a means test, most people that qualified for a Chapter 7 bankruptcy discharge prior to these changes still qualify. Even if you have a six figure income, you can still qualify for Chapter 7 because the test is not based on criteria that is relevant for low income based government benefits. If your income is below the median income for your state based on the number of people in your household, you qualify under the Chapter 7 means test without further analysis. The median income level for a family of four filing for Chapter 7 in Maryland after May 1, 2014 is $107,233. Even if your income exceeds the median income based on your domicile and family size, you may still qualify, but a further analysis must be conducted. An experienced Baltimore bankruptcy attorney can analyze your income, expenses, debts and assets to determine if you qualify.
Myth #2: Chapter 7 bankruptcy will permanently destroy your credit.
While a Chapter 7 discharge will have an adverse impact on your credit, your ability to obtain credit might actually improve in the long-term. Most people facing bankruptcy already have a substantial amount of derogatory credit in the form write offs and late payments. As soon as you receive a Chapter 7 bankruptcy discharge, your debt to income ratio will immediately improve because most or all of your unsecured debts will be discharged. If you are diligent about making payments as they come due on obligation after your bankruptcy discharge, you will be able to begin rebuilding your credit. While you might need to begin with secured credit cards that have high fees and related charges or credit cards with high interest rates, you will start to receive offers with normal interest rates as you rebuild your credit.
Myth #3: The bankruptcy process cannot help me with past due child support.
While child support, alimony and similar obligations in the nature of family support are not dischargeable in Chapter 7, this does not mean that the bankruptcy process cannot provide relief from such obligations. A Chapter 13 bankruptcy can be used to stretch out payment on arrears, so you have time to get caught up on past due child support. Further, you can avoid harsh enforcement tactics provided you continue to make your monthly plan payments to the bankruptcy trustee as well as current child support payments as they come due. Further, a Chapter 7 might allow you to reduce your total debt load, so you are better able to make child support payments.
Myth #4: All unsecured debts must be repaid if you are forced to pursue Chapter 13.
While a debtor who cannot qualify for Chapter 7 might be required to repay some portion of his or her unsecured debts, the amount that must be paid back will depend on a debtor’s disposable income after paying secured debts, priority unsecured debts (e.g. child support, alimony, most tax obligations, student loans) and allowing for certain expenses. If the debtor completes the 3 or 5 year payment plan, any remaining balances on ordinary unsecured debts like credit cards, unsecured lines of credit, unpaid utility bills, hospital bills and similar expenses will be discharged similar to a Chapter 7.
If you are unable to afford your monthly debt payments or you are struggling to keep current on your mortgage, our experienced bankruptcy attorneys at Georgette Miller and Associates P.C. can evaluate your situation and explain your debt relief options. Please feel free to contact us today at 866-964-6529 to learn how we can help.