Bankruptcy has carried a stigma for a long time – but that is changing. As the country weathered the challenges of the pandemic, many people found themselves in financial crisis. Now the struggling economy is hurting many more. In the past, bankruptcy was a taboo subject, but it no longer carries that reputation. There are many misconceptions about the bankruptcy process, causing some people to avoid it at all costs. However, the truth about bankruptcy is that it can be a powerful way for people to get their life back on track.
Of course, bankruptcy isn’t suitable for everyone. But if you are ready to learn more about this option, start with these five bankruptcy facts that may surprise you.
1. Bankruptcy is common. You may think that filing for bankruptcy means you’ve given up, admitted defeat, or somehow failed. However, bankruptcy is a legal option that thousands of Americans use annually to eliminate many of their debts and begin rebuilding their financial strength. In 2020, over 540,000 people filed for bankruptcy – making it a lot more common than you may think.
2. Bankruptcy comes in many forms. There are different kinds of bankruptcy to address various financial scenarios. Chapter 7 bankruptcy is for those who want to quickly eliminate their debts and are willing to give up some assets. Chapter 13 bankruptcy allows you to keep your assets, implementing a three-to-five-year repayment plan with remaining debts discharged at the end of the process. These are the two most common bankruptcies, but there are others. Chapter 11 is known as “business bankruptcy,” while Chapter 9 permits certain public entities to reorganize their debts; Chapter 12 bankruptcy assists farmers. Chapter 15 bankruptcy is for foreign bankruptcy filings with United States assets.
3. Bankruptcy doesn’t eliminate all debt. Individuals can use bankruptcy to erase most debt, but not all of it. Some debt cannot be eliminated through bankruptcy, such as student loans, alimony, child support, and certain tax obligations. When it comes to secured debts, such as a car loan, you may be able to erase the debt – but you are likely to lose the car. If you want to hold onto your vehicle (and other secured assets), consider Chapter 13.
4. Bankruptcy doesn’t take all your assets.
Many people assume that they will need to sell all of their assets to get through bankruptcy. This is not entirely true. Although some assets will need to be liquidated, most people will be allowed to retain their essential possessions. Some people will not lose any assets at all. During the filing, assets may be labeled exempt or otherwise protected and remain unaffected. The most common exemptions during bankruptcy include the home, car, clothes, furniture, and tools of the trade.
However, non-exempt assets may be sold to pay back your creditors. The court may require items such as expensive jewelry, coin or stamp collections, car collections, or other luxury items to be sold to help pay off your debt.
5. Bankruptcy may represent the key to your financial future. Experiencing bankruptcy doesn’t mean that you will be impoverished for life. Instead, it represents a fresh start that gives you a level playing field and the opportunity to achieve future financial success. Many major corporations have filed for – and recovered from – declaring bankruptcy. It may take some time and diligence, but reaching future financial goals is possible. Working intelligently to rebuild your credit and manage your finances allows you every opportunity to achieve a solid financial future.
Here’s a bonus tip: While working with a bankruptcy attorney is not required, having a professional by your side can make the process a lot easier. An experienced bankruptcy attorney can help you navigate the process and position you for the future.
Richard V. Ellis is a Sarasota bankruptcy attorney who has helped hundreds of area residents get back on their feet.