One of the major misconceptions people have is in thinking they’ll lose everything if they file bankruptcy; that they’ll lose their house, their cars and of their possessions, which is simply not true. In In the state of Connecticut and under federal law, there are exemptions that allow you to keep your house, your cars and all personal possessions.
Who Files for Bankruptcy?
Basically, people file bankruptcy because they have become unemployed or underemployed, or have had health issues and incurred large medical bills; it’s not because they’re deadbeats who rack up credit card debt and just file bankruptcy to get out of it. There is usually a good reason for filing bankruptcy, having to do with their employment, their health or a divorce. For example, the number one reason people file bankruptcy is due to medical bills.
Older generations see bankruptcy differently than the younger generation; older people tend to be prouder and have a greater tendency to view it as shameful, so they will do everything they can to avoid it. The younger generation realizes that things happen in your life that are beyond your control, whether it has to do with your health, or a divorce or you lose a job, and bankruptcy is there for a fresh start, so they can get on with their lives.
Many people hesitate to file bankruptcy because they believe they will lose their house or their cars or their personal possessions, or because they imagine they’ll ruin their credit score and won’t be able to get credit ever again.
Do You Ever Advise Your Clients to Seek Credit Counseling Before Filing?
Usually, by the time people come to me, they’ve already done that or they’re too far gone for that to help them. They need a fresh start and they need to discharge their medical bills, personal loans and credit card bills because of their financial misfortune, whether it’s unemployment, divorce, or health issues.
What is Bankruptcy Like?
It’s a very simple process and not at all intimidating. In Chapter 7 bankruptcy, which is the one in which you all of your credit card bills, personal loans and medical bills, you never have to go to court; you just go to a meeting creditors meeting for which no one ever shows up. That meeting takes about five minutes and from start to finish and within six months your debts are discharged.
No one will find out about it unless it’s a new employer and they do credit checks for the new job. Otherwise, though, it’s public, but people would have to search to find out anything.
Usually, after you file bankruptcy and your debts have been discharged, you can get credit cards right away; since you can’t file again for 8 years, you’re considered a good credit risk. Interest rates obviously are higher, but you can get a car loan, a mortgage, student loan and credit cards. It really doesn’t affect you other than the fact that interest rates will be higher.
What Do You Suggest Your Clients Do in Preparation for Filing Bankruptcy?
I download three credit reports into my bankruptcy program and I ask them to give me one statement from each of their debts, including medical bills, credit card bills, personal loans, mortgage statements, car loan statements, everything. Then I’ll ask for two years of tax returns and six months of pay stubs, as well as a market valuation for the value of their home from a realtor if they own one, any copies of the mortgages reported on the land records if they own a home and I need the most recent bank account statements for all bank accounts. We have to provide back up for everything we put into the bankruptcy petition.
Once they provide all the paperwork to me, they have to take one counseling class prior to filing bankruptcy and one after; they can be taken by telephone or on the internet. They will then sign all the bankruptcy paperwork after they reviewed it and gone over it with them. We file them electronically and sometime within the next six weeks you go to the creditor’s meeting, and six weeks after that, they get a discharge.
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