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Exploring Bankruptcy Myths: A Simplified Guide

Posted by attorney Myava Escamilla
Filed under: Sole proprietorship

Bankruptcy is about new beginnings. It is a federal right. It is not a moral decision, but rather one of the few effective financial tools given to people and businesses struggling with debt and overwhelming fiscal obligations.

Why hire an experienced Attorney and not a paralegal?

A paralegal or bankruptcy preparer CANNOT give you legal advice on how to best obtain discharge and protect your assets. They are legally and strictly prohibited from giving legal advice. They cannot represent you in any court or bankruptcy proceeding. While they may attempt to give you advice, you alone bear the risk of their mistakes. You cannot simply dismiss a case if something goes wrong.

You must be fully informed about your rights and potential issues in your case in order to make the best decisions about your future. A paralegal cannot help you do this. There is simply too much at stake for you.

BANKRUPTCY MYTHS

It is now harder to successfully file bankruptcy. FALSE.

After 2005, personal bankruptcy requires the filing of a Means Test which examines your annual income and makes some presumptions based on your geographical area and family size as determined by IRS standards of living. However, for many clients this is not a significant issue.

Many practitioners will turn someone away if there is a Means Test issue or force them into a Ch. 13 - which means they will have to repay some of their debt.

I'll never get credit again! FALSE.

A bankruptcy will appear on your credit report for up to 10 years after filing. However, any other negative item appears on your report for 7 years and a creditor can still attempt to come after you for it. Creditors regularly sell their debts to collection companies, and that new items may appear on your credit report for another 7 years. One debt may be recycled in this way multiple times - wrecking havoc on your credit.

A bankruptcy appears once, stays there for 10 years, you are not legally responsible for the debt. Further, after discharge, credit and lending agencies know that you may not file another bankruptcy for at least 6 years. They may be your only creditor at that point. This makes them more willing to lend credit again. You get a fresh start. A fter discharge, clients may start re-building their lives and credit again. Credit restoration does not happen overnight but it does happen.

If I file bankruptcy, I cannot keep assets or belongings. ABSOLUTELY FALSE.

Under Californias two exemptions sets - CCP 703 and CCP 704. someone filing bankruptcy may keep a significant portion of their assets. For example, depending on your classification you may keep between $75,000 and $175,000 in a homestead exemption. You may keep retirement savings, personal belongings, equity in vehicles, and even a wildcard exemption that may be used on almost any asset. If I file bankruptcy, I'll never get a student loan or employment. False.

Section 525 of the Bankruptcy Code prohibits discrimination based on exercising the federal right of bankruptcy by a governmental agency, student loan program, or private employer. There are remedies if you are discriminated against.

I already have a judgment or garnishment. It's too late for me. False.

You can get rid of a judgment, stop a garnishment, stop a foreclosure, stop civil proceedings with a bankruptcy. This makes it one of the most powerful economic tools in the hands of consumers. Even after judgment, any dischargeable debt (i.e. not a support obligation, student loan, debt incurred by fraud or other debt excluded from discharge) may be discharged.

Businesses cannot file bankruptcy. False.

If a business is a sole proprietorship, then they have similar options as an individual they may consider and file a Ch. 7, Ch. 13 or Ch. 11. Corporations, LLCs and partnerships may file a Ch. 7 or Ch. 11 depending on whether they want to extinguish liabilities and close or re-organize their debt to stay in business.

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