Bankruptcy Myths & Facts

BANKRUPTCY MYTHS AND FACTS

Myths and the Facts You Need to Know

We are the premier bankruptcy attorneys in Walworth County. Bankruptcy is one of our specialties. We have been asked many questions at Murphy, Volbrecht & Kuehn about bankruptcy. Most people have it set in their minds that they can or can not do certain things when they file a bankruptcy. We want you to have the facts. If you are trying to avoid bankruptcy because of what you have heard, please come in to our Elkhorn Office for a free consultation to speak to us about your concerns. Most people we see who are contemplating filing bankruptcy have come to us due to issues surrounding the loss of a job, a serious illness or another life changing experience. Filing bankruptcy does not mean you are a bad person. We treat each individual as a person, not a number.

Will I lose all my property? / Protect your assets

There is a general misconception that you will lose your property when you file a bankruptcy. Each State has it's own Exemption Rules and there are Federal Exemptions to protect your assets. Every debtor is allowed a certain amount of Exemptions up to a set dollar amount. This means that you will not lose your possessions in most cases. If you fall into the position where your assets are more than the Exemptions allow, filing a Chapter 13 rather than a Chapter 7 may be more feasible for you. You would need to set up a consultation with us at our Elkhorn Office in order to determine if any portion of your assets are not protected by the Bankruptcy Exemptions.

Over 95% of bankruptcy cases are what the Court classifies as a no asset case. This would mean that the debtor is allowed to keep everything he or she owns. The Exemptions provide for example some assets, like pensions, which are beyond the reach of the bankruptcy trustees and creditors.

Save your house / Stop Foreclosure

We have seen many clients that are either already in the process of being Foreclosed upon or trying in vain to restructure current loans in order to retain their homestead only to find that they have been rejected. This is indeed a very emotional time in their lives. We do our best to help you determine if filing a bankruptcy may be your answer. A bankruptcy can essentially stop a Foreclosure Action in its tracks up to the point of the Confirmation of the Sheriff's Sale. At that point the Foreclosure is finished and the creditor has obtained the rights to your property. Do not wait for your case to go that far come in for a free consultation to determine whether a bankruptcy may remedy your problem. Even if you are thousands of dollars behind on your Mortgage, filing a Chapter 13 can help you keep your home.

Should your finances not permit you to file a Chapter 13, a Chapter 7 Bankruptcy can also stop the Foreclosure allowing you to stay in your home for some time. Once a bankruptcy case is filed an Automatic Stay is put in place, which stops any further action from any creditor. The creditor would need to file a Motion within the Bankruptcy Court to lift that Stay in order to continue with the Foreclosure ensuring you further time to maintain your home and then discharging any money owed to that creditor after the sale of your property.

Everyone will know that I filed

In general the only people that will know that you filed are your creditors and co-debtors unless you tell them. Although the Court Records are Public Records, most people do not take the time or effort to search those records to determine if a party has filed. Those that you do tell should know that you are taking a responsible step to take control of your finances and your future.

Does my spouse also have to file for bankruptcy?

The State of Wisconsin is one of the States where if you are married with few exceptions, debt is deemed marital debt if it was incurred during the marriage. Yes, you may file individually, but it is usually not in your best interest as the creditors will have the right to go after your spouse for those debts after your discharge if he or she did not file jointly with you. Even if you are in the process of a Divorce it is usually best to file a joint bankruptcy Petition prior to the Judgment of Divorce. Many Divorce attorneys in the area send their clients to us for this purpose. You can still file a joint bankruptcy Petition even if you are maintaining separate households.

If you do decide you wish to file individually you will need to disclose the assets, debts, income and expenses of your non-filing spouse. If you do decide to file individually you must pay careful attention to what property will be considered property of the Bankruptcy Estate.

Wisconsin is a community property State. This means with few exceptions, spouses equally own all property earned or received during the marriage. During bankruptcy all of the community property you and your spouse own jointly is part of the bankruptcy estate even when there is a non-filing spouse. Property you owned prior to the marriage is not effected by a separate filing.

There are many more issues regarding this matter and you should discuss them thoroughly with your attorney prior to making any decision in regards to filing a bankruptcy. Please contact us for an appointment to discuss this matter should you be contemplating filing individually as a married party.

Will I ever get credit again?

The Fair Credit Reporting Act allows the reporting of your bankruptcy filing for 10 years. This does not mean that you will not receive new credit in that time frame. In fact, most debtors start receiving offers for credit shortly after they receive their discharge. Although we do not advise clients to go out and get several credit cards after they are discharged, they may need some type of credit for either travel or general expenses. Should you deem one necessary we usually suggest a gas card that you pay off every month to build your credit back up. In the alternative a Bank Debit Card from your Bank works well and in using this method you are using your own funds. It will take some time to build your credit back up.

You should keep in mind that most offers of credit or approvals will come with a much higher interest rate as you will be considered a risk until you can build your credit back up. You even are able to purchase a vehicle, again with a much higher interest rate. As to a new home, that could take up to 3 to 5 years before a lender would grant you the credit. Filing a Bankruptcy is the worst negative to have on your Credit Report, but in time your rating will get better given you are able to keep up with your debt.

Also, during a Chapter 13 a debtor is allowed to obtain new credit while in their Chapter 13 Plan with approval from their Standing Trustee.

I was told that I do not have to list all my debt if I want to keep a credit card that I like.

Another myth. You must list all your debts within your bankruptcy. Failure to do so may constitute fraud as seen through the eyes of the Bankruptcy Court as you are preferring one creditor over another. There is no preference allowed within the bankruptcy. If there is a debt that you are keeping such as a vehicle or home debt you must still list that debt and then reaffirm that debt through your bankruptcy in a Chapter 7 Bankruptcy and continue to make payments on that debt as if you did not file on it.

Chapter 13 Plans require full repayment of all of my debt

Another Myth. Chapter 13 Plans vary from client to client. In some cases the payout is 100% to the non-priority unsecured and others down to zero to the non-priority unsecured creditors. Each case is unique and we spend the time needed to work through the Plan that will meet your needs and be feasible with the Court. The payments will vary and it is based upon the last six months of your earnings and the expenses that the court allows you to use in your Means Test along with the amounts of your secured, priority and non-priority unsecured debt. The Means Testing is a requirement of the court for Chapter 7 and Chapter 13 debtors and will be explained to you during your conference.

All debts are gone after I file bankruptcy.

This is not true. Certain debts are not discharged. These debts include, but are not limited to the following:

• Taxes and governmental debts

• Child support and alimony (a.k.a. Maintenance)

• Government guaranteed student loans (although these may be dismissed if you can prove it would be an undue hardship for you to repay)

 • Accident claims in which alcohol or drugs were involved

• Debts incurred as the result of fraud

• Debts you don't list in your bankruptcy filings

• Fines or restitution imposed in a criminal proceeding

• Debts you couldn't discharge in a previous bankruptcy that were dismissed due to fraud or misfeasance

There are other debts which can be challenged in the bankruptcy court by the creditor through what is called an adversary proceeding. Although certain debts remain non-dischargable you do have the option of paying down those debts within a Chapter 13 bankruptcy. Some of these debts may also be discharged if you meet all of the qualifications for a hardship and are approved. If you have any concerns over any of these issues please set up an appointment with us to discuss your concerns.

Contact a Walworth County Bankruptcy Law Attorney

Please contact our Elkhorn law firm with questions about the legal matters that affect you. We are available by calling 262-723-4110 or by completing our online contact form. Our Elkhorn divorce law attorneys are available five days a week, as well as evenings and weekends by appointment. Home and hospital visits are available