Probably the biggest misconception people have is that they won’t have a life after bankruptcy, but our clients actually end up being remarkably happy and prosperous after going through the process and getting rid of the debt, so they can then embark on a new business or financial plan.
The second biggest misconception is that they will lose everything, whereas the retirement accounts and some equity in a house can all be protected or considered exempted assets in the bankruptcy, which means they won’t necessarily lose everything. Our goal is to make it so that our client does not lose anything and we almost always are able to achieve that result.
Has Bankruptcy Always Had A Negative Stereotype And Has It Been Dispelled Recently?
In my private practice, I have seen that the vast majority of people who have filed bankruptcy are good people who ended up in a bad spot. Most trustees believe that to be the case as well. I know they believe this because I discussed this with other trustees when I was on the panel. However, there are always a few bad apples in every bushel who give a bad name to everyone else. An example would be people who try to commit fraud. They are the difficult people who stick out and are remembered although they are in such a small minority.
Bankruptcy is something people should certainly avoid if they reasonably can, but it can be the best move if it makes sense economically. After a careful analysis with a couple of advisors, if it makes sense, they should do it and not look back.
Does Filing For Bankruptcy Ruin The Person’s Credit Or Can It Improve After Bankruptcy?
Sometimes people contact me wanting to file bankruptcy just to clean up and fix their credit, and I tell them that just cleaning up their credit is a bad reason to utilize their fresh start. The bankruptcy will sit on their credit report for between 7-10 years, although a client who pursues a credit rehabilitation program right after the bankruptcy can usually have very good credit within 2-3 years. This is not credit repair, which I define as denying debt and playing games with credit reporting agencies to see if they can verify the debts. I am talking about removing untruthful things and replacing them with new positive credit. I have seen clients get home and car loans after 2-3 years.
Often, a person’s credit is better after the bankruptcy because it shows discharged debt as opposed to it showing all the past-due debts before the bankruptcy.
Who Would Be Notified When Someone Filed Bankruptcy, And Would An Employer Find Out?
A bankruptcy is a matter of public record when it’s filed, although it’s unlikely anyone will actually dial up the court’s database and make an inquiry. The only people who get affirmative notice are creditors, so unless someone owes their employer money, there is no reason for the employer to know.
One other way they may find out is if there was a wage garnishment, in which case they will have to notify their employer to stop the garnishment anymore.
What Do Potential Or Past Clients Do That Hurts Their Fresh Start?
First and foremost, the biggest mistake would be not having a lawyer guide them through the bankruptcy process and not getting a complete bankruptcy or losing assets, because that would just be foolish. Yet, about 20 percent of people nationwide try to handle their bankruptcy themselves.
The success rate is far less than with a lawyer, in part because there is a kind of hierarchy. You can try and do it yourself, or hire a paralegal or you can hire a lawyer who just started, but the best choice is to hire an attorney who has made this their career and who has years of experience, and who may even be a trustee.
