Myths About Bankruptcy after the Law Changes

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by Hale Andrew Antico, Esq.

The bankruptcy law has been changed now for over half a year.  Many provisions of the new law -- really a total rewriting of the bankruptcy code -- have gotten a lot of media exposure.   However, this has left false impressions with many people as to the true impact of the laws surrounding bankruptcy, and the real state of things as they are today.  This is unfortunate, as there were already many bankruptcy myths and misconceptions involving BK before the law changed.  So, when you wrap an enigma inside of a mystery, you get all kinds of riddles and conundrums.  Let's tackle a couple of the legends.

Myth : Bankruptcy is no longer available as a debt solution

The dramatic changes to the bankruptcy law did not eliminate this last resort.  Even Chapter 7 bankruptcy, which allows people to wipe their debt away without any repayments, is still available.  The major changes surrounding Chapter 7 involve anyone being able to qualify for it.  There are income limitations involving the availability of Chapter Seven bankrupcy now.   Which leads us to...      

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Myth :  People who make better-than-average income can no longer file bankruptcy. 

Without splitting hairs about the difference between a median and an average (something that many of us last heard about in eighth-grade math class), bankruptcy still exists even for those who earn more than the state median.  The major difference here is that the very strong presumption that these high earners should be paying something back in a situation very much like debt consolidation.  Why?  Because they can afford to.  This is the overall wind shift in the new law, and exactly the reason that Chapter 13 bankruptcy is around.                 

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Myth : Everyone must file Chapter 13 bankruptcy now ....

Most people who have filed bankruptcy since the law changed have still filed Chapter 7.  In other words, the income limitations meant to corral more people into Chapter Thirteen bankruptcy have impacted only some debtors.  Granted, Chapter 13 filings are up from last year (which is the law's intent), but those that do file Chapter 13 have a real and definite timeline to get out of debt.   However, Chapter 7 bankruptcy is still available for those that qualify.

Myth:     ... and pay back all their debt

While many Chapter 13 debtors do pay all their debt back over three or five years of monthly payments, not all do.  Some only pay the portion which they can afford.  What cannot be afforded to be paid back in the payment plan gets wiped away.  End result?  Being out of debt in 36 or 60 monthly payments.                 

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Myth:    I'll lose my stuff and the creditors will call me, sue me and garnish me.

Ok, this is really a few myths all into one.  Most people who file bankruptcy with someone who understands the protections available for their property lose their property.  Also, the very strong power of "bankrupty protection" is still as forceful as ever.  As soon as your creditors are notified of your filed case, phone calls, letters, lawsuits, foreclosures and even wage garnishments must stop immediately.                

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Myth :  It costs an arm and a leg to get a fresh start with a bankruptcy attorney.

Prices are higher than before.  The filing fee has gone up, and there's the new cost of credit counseling. It's not out of reach, though.  While it's one of life's little ironies that it typically "costs money to go broke", an affordable payment plan is available with our office.

As you can see, bankruptcy is still around as a viable safety net for those who took a risk in life that didn't work out, or just plain had bad luck (divorce, job loss, car accident, etc).  This is not intended to trivialize the changes in the BAPCPA, for the modifications in the law are vast and meaningful, both in substance and procedural.  However, if you want a fresh start, a skilled practitioner in this specialized field can help you navigate these new murky waters and get the breathing room you need.

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