January 23, 2021

Bankruptcy Tips & Secrets

Knowing what to expect can make filing for bankruptcy a smoother, less painful process. Here are some helpful tips and secrets about filing for bankruptcy:

orangecheckPersonal bankruptcy is not just for the poor anymore; formerly affluent people are being pushed into bankruptcy more than ever before. Due to the decline in real estate values and the increase in job losses in professional positions, 8.1% of bankruptcy filers last year made over $60,000. This fact lessens the stigma that personal bankruptcy is for the poor and those irresponsible with their money.

orangecheckYou can choose the best way for your debt to be handled when filing for personal bankruptcy. If you file for Chapter 13, you play an integral role in determining how you will pay off your debt. You will help design a payment plan that works for you, and thus you have a lot of choice about the way your bankruptcy plays out. Even with Chapter 7, you and your attorney can negotiate with creditors to find a way to fit your needs. Chapter 7 and Chapter 13 bankruptcies can be complicated, however, so it is highly recommended that you consult a bankruptcy attorney before filing either type.

orangecheckA common misconception about bankruptcy is that it will leave you with nothing and homeless. Even in Chapter 7 cases, in which most a debtor’s assets are liquidated in order to pay off creditors, debtors often get to keep their homes. This could be because the debtor has taken out a second mortgage or the value of the home has fallen. There is also something called the homestead exemption which most of the time allows the debtor to keep their main residence if their equity in it is below a certain threshold. The laws vary between states, so it is recommended that you consult with an attorney before moving forward.

orangecheckBankruptcy could potentially improve your credit scores in the long run. While it is true that the immediate effect of bankruptcy is a drastic lowering of your credit scores, bankruptcy can be less damaging down the road than juggling late payments on credit cards for years in an attempt to delay the inevitable. Because 35% of a person’s credit score is based on payment history, it is important to keep from missing any payments and establish new credit as soon as possible. Bankruptcy stays on your credit report for 10 years, but you can work to repair it immediately.

orangecheckMany debt settlement firms can actually do more harm than good. Most are unregulated, for-profit, and require regular payments before even helping the debtor. Because they are getting fees every month, they have little incentive to settle with creditors quickly. I recommend being very wary of debt settlement firms.

orangecheckWhile it’s a natural desire to pay back friends and family before filing for bankruptcy, it can cause many problems. The trustee has the power to sue over any money repaid to friends and family within a year of bankruptcy if it is not voluntarily returned. Bankruptcy filers must disclose everything they’ve sold, transferred or given away in the past two years, and attempting to hide assets from the court can lead to bankruptcy discharge or even jail time for perjury.

orangecheckEven if you stop receiving bills, it is still important to pay them. When you file for bankruptcy, you stop receiving collection calls and most bills aren’t sent to you, but that does not mean that you are released from obligations for paying them. If you file for Chapter 7 bankruptcy you must remember to continue to pay for what you want to keep, known as “secured possessions” such as a car or house, even if you don’t receive a bill.

orangecheckTiming is very important, and when you owe more than you own, it’s time to talk to a lawyer. It does not mean that bankruptcy is the next step. As counter-intuitive as it may seem, it is sometimes best to wait until you think the worst is over. Otherwise you may file prematurely and acquire more debt that will not be included in the bankruptcy discharge. For example, if you are facing hospitalization you may want to wait to file until that’s behind you. However, there are other situations where it is better to file sooner rather than later. Legal advice can help you find the correct timing.

orangecheckThere is nothing easy about bankruptcy, but it certainly does not have to be the end of the world. An important part of coping is for debtors to acknowledge the normal feelings of depression, fear, and anger that come with filing for bankruptcy, and to make sure to reach out to support networks. The stigma that comes with bankruptcy has been lessened as it becomes more widespread and accepted. Often times filers come out stronger than they expected.


Jonathan Ginsberg has been in private law practice since 1987. He writes and teaches about Chapter 7 and Chapter 13 bankruptcy protection.