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Top 10 Misconceptions Regarding Bankruptcy by henriette piper





Article Author Biography
Top 10 Misconceptions Regarding Bankruptcy by
Article Posted: 07/27/2012
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Articles Written: 1889
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Top 10 Misconceptions Regarding Bankruptcy


 
Business
Bankruptcy is everywhere. Bankruptcy influences everyone including, however, not limited to, Debtors, Creditors, Lending Institutions, Accountants, Financial Analysts, Mortgage Brokers, Real Estate Agents, All Kinds of Lawyers, Possible Homebuyers, Owners of Real Property, The President of the Bank of Mom & Dad, etc. Thus, an learning of the Bankruptcy Code and the principals enunciated therein are imperative for everyone.

Bankruptcy legislation is extremely complex and, like different areas, takes a appreciable investment of time to master. The factor of the post is not to create you an professional in Bankruptcy legislation. This post is intended merely to apprise you of various misconceptions regarding Bankruptcy that arise every day. Just like any subject of the legislation, you should find tips of an experienced attorney before taking any action.

There are several misconceptions regarding Bankruptcy that everyone ought to be mindful of. I usually try to dismiss themost blatant misconceptions. Below is my Top 10 list of Popular Bankruptcy Misconceptions.

1. The debtor (footnote 1) must be broke to file Bankruptcy.

Nothing is further from the truth. With limited exclusions, the only prerequisite to file for Bankruptcy is that the Debtor cannot pay their bills because they come due (occasionally called financial distress). This makes sense whenever provided certain thought. If a person had to be broke to file Bankruptcy, that person wouldn't have the ability to pay their attorney, which would cause a proliferation of professional se Debtors which would clog the Courts and drive the whole Bankruptcy Court program insane.

Next, if the "broke" Debtor cannot file Bankruptcy, they might in all likelihood become public charges since they do not have anything left to reside in on. To avoid this burden found on the government, Congress has permitted "exemptions" to let Debtors to keep a certain amount of home inspite of the Bankruptcy submitting. For example: in NY a person submitting for Bankruptcy is permitted to have, among different points, upwards to $5,000 in money, $4,000 value of collateral in an car and countless funds located in a qualified 401K program (footnote 2).

Finally, considering people and companies commonly wait until they are broke to seek Bankruptcy advice, this irrelevant delay precludes options available for them which will help them reorganize their finances and enable them how to keep element or all their property. As an example, someone commonly waits until the day before a foreclosure sale to seek Bankruptcy advice where had they desired advice earlier; their possibilities of saving the property would have been greatly improved.

2. If someone files Bankruptcy, his/her credit is wrecked and (s)he won't be eligible for credit in the future.

A blatant lay! The proven fact that someone files for Bankruptcy usually appear found on the individual's credit report for upwards to ten years. While this might seem draconian, this may not be because bad because it will initially appear.

First, when someone is considering submitting Bankruptcy, their credit is possibly not that great to start with. Filing Bankruptcy can be their best bet to "get good credit" again. Why you ask? The rationale is simple. Whenever a Debtor files for Bankruptcy under Chapter 7 of the Bankruptcy Code and gets a discharge (footnote 3), a Debtor cannot receive another discharge under Chapter 7 for at least 8 (8) years.

Lets pretend you may be the head of the credit card company in charge of deciding to whom to extend credit and you may have two identical individuals with one exception, one of the individuals submitted Bankruptcy three months ago. Who would you extend credit to? Applicant #1 which not submitted for Bankruptcy and which may file Bankruptcy any kind of time time after taking finances thereby discharging your debt? Or would you extend credit to Applicant #2 which submitted for Bankruptcy three months ago and which lately received a discharge under Chapter 7 of the Bankruptcy Code thereby insuring that your loan can not be discharged under Chapter 7 for at least the upcoming 8 (8) years?

The answer is simple, in the above mentioned hypothetical, the one who lately submitted Bankruptcy is the greater credit risk considering someone could receive just one discharge under Chapter 7 every 8 (8) years. This, actually results in the individual which submitted Bankruptcy obtaining a large number of unique credit card provides within months of submitting Bankruptcy!

3. If a person files Bankruptcy, they cannot purchase a house in the future.

Another lay! All banks are prepared to take dangers with people which submitted Bankruptcy when they have enough safety. This normally means a higher rate of interest however, remember underneath line here: banks are looking to create income. If a person who submitted Bankruptcy in yesteryear applies for a lending and therefore individual has a sufficient down payment, banks is tripping over themselves to give them a lending.

4. If a person owns a home and files for Bankruptcy, they usually lose my house.

Yes with no. An individual in the five boroughs of NY, Long Island and Westchester is permitted to keep the first $150,000 in collateral in their homes most importantly liens and encumbrances inspite of the Bankruptcy submitting (the exemption is $300,000 for married couples submitting Bankruptcy together). This really is called the "homestead exemption." Lets consider a few of popular scenarios:

"The individual is present found on the lending, there is little collateral in the property and has now a ton of credit card debt." Let's assume that the property is worth $650,000 and there is a lending of $500,000 found on the home. In this case, that individual could file for Chapter 7 but still keep their property.

Let's change the important points a bit. Let's say the same house is value $650,000 however, the individual has a $400,000 lending found on the home. After we consider the $150,000 homestead exemption, the individual is left with $100,000 in non-exempt collateral. If they files for Chapter 7, the Chapter 7 trustee (footnote 4) usually sell the property and the individual is provided the first $150,000 from the proceeds of the sale. The point that should be emphasized here is that the individual usually lose my house under Chapter 7 except after the submitting of the Bankruptcy the individual could appear with $100,000 to pay the trustee the non-exempt collateral. These funds could come from a post-bankruptcy lending or perhaps a loan from family and/or friends.

Next example: "The individual is behind within their lending, there is substantial collateral in the property and has now many credit card debt." In this illustration, assuming there is income left over monthly after paying the usual monthly bills (the loan paymentnot including arrears, fuel, electricity, food, etc.), if this left over income could meet the arrears found on the lending over a period of not to exceed five years, the individual can keep my house in under Chapter 13. Chapter 13 is very complicated but its principle is simple. As long because the individual repays the debt, they could keep the property. This can be an oversimplification however, the aim to keep in mind will there be are options.

5. Taxes can not be discharged in Bankruptcy.

Wrong! Some taxes are dischargeable in Bankruptcy like certain personal income taxes that are more than three years old when certain requirements are met. As a general regulation, fiduciary taxes (e.g. - sales taxes) are not dischargeable. The Bankruptcy Code's provisions relating to taxes are rather complex and vary depending found on the Chapter submitted under however, suffice it to say, certain taxes are dischargeable.

6. Student financing are non-dischargeable.

Generally talking this might be real. However, like almost every regulation there are exclusions. If the Debtor could confirm certain hardship, student financing is eliminated in Bankruptcy. This really is commonly an uphill battle however, not impossible.

7. An individual could file for Bankruptcy however, not include certain lenders in the Bankruptcy.

Wrong! One of the principles behind the Bankruptcy Code is to deal with similarly located lenders equally. When a Debtor refuses to list a creditor in their Bankruptcy and determines to pay that creditor back, that Debtor is prejudicing the different lenders. If a Debtor does this, the Court views this scam and the Debtor could risk losing their discharge and in extreme circumstances face imprisonment time in addition to a hefty fine. Don't do it!

8. If I need to list all lenders in the Bankruptcy, I usually end upwards cheating my mom by discharging the income she loaned me.

Although a Debtor must list all their lenders in the Bankruptcy; in certain cases the Debtor could return a creditor after the Bankruptcy is submitted. This really is commonly known as a "Reaffirmation." All reaffirmations are topic to court approval. The reason most Debtors accept to pay back a debt they do not have legal obligation to pay is to maintain a current business relationship. In our example, the court would likely approve the reaffirmation when the Debtor lives with mom and concerns that mom will throw him away.

9. I finalized a piece of paper stating I cannot eliminate of this debt in Bankruptcy but feel therefore stuck with it forever.

This is another scare strategy. Although the Bankruptcy Reform Act of 2005 has modified this rather, there are say legislation remedies available. Consult with your Bankruptcy Attorney regarding these provisions.

10. I may shed my job when I file for Bankruptcy.

If you shed your job, you can sue your employer! The legislation says that when someone could confirm that an boss fired a worker solely considering the employee submitted Bankruptcy, the employee could sue the boss. As a caveat, when the Debtor/employee looks for another job after the submitting of the Bankruptcy, the boss are able to use the Bankruptcy submitting because a factor (not the sole factor) in deciding whether to grant that individual employment.

As the above mentioned info indicates, there are many misconceptions regarding Bankruptcy.

Neil E. Colmenares, Esq.

Footnote 1 - A "Debtor" is someone or entity that owes income. The Bankruptcy Act of 1898 which had been changed by the Bankruptcy Code of 1978 substituted the term "Bankrupt" for "Debtor." One of why for this change in nomenclature was to aid eliminate a few of the social stigma involved with submitting Bankruptcy. Remember, many of us are Debtors.

Footnote 2 - For a complete list of exemptions for Debtors which are domiciled in NY, see the NY CPLR Sections 5205 and 5206, NY Debtor and Creditor Law Sections 282 - 285 and the NY Insurance Law Sections 3212 - 3213 and the United States Federal Exemptions situated in Title 11.

Footnote 3 - A discharge is a court injunction reducing the Debtor of the obligation to settle most debts and preventing lenders from collecting for same.

Footnote 4 - A "Trustee" is a person hired by the Court to give the Debtor's estate. The Trustee's leading function is to market the Debtor's non-exempt home and employ the proceeds to pay lenders.

This post is solely a public resource of general info and it is actually not intended to be nor could it be a source of legal advice. You should consult an attorney for advice regarding your specific condition. This communication refuses to create an attorney-client relationship.

All rights booked.


Denver Colorado Bankruptcy

Related Articles - bankruptcy denver colorado, bankruptcy denver co, bankruptcy in denver, bankruptcy lawyers in denver co, bankruptcy lawyers denver, bankruptcy denver,

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