Bankruptcy Myths Debunked: Facts and Fiction About Chapters 7 and 13
Bankruptcy is a legal process that allows individuals and businesses to deal with their debts when they become unmanageable. While Chapter 7 and Chapter 13 bankruptcies offer valid solutions for many, misconceptions abound, causing unnecessary fear and hesitation. In this post, Los Angeles Bankruptcy Attorneys, Wadhwani & Shanfeld will debunk some common bankruptcy myths and provide accurate information about Chapter 7 and Chapter 13 as they apply to Los Angeles residents.
Myth 1: Filing for Bankruptcy Ruins Your Credit Forever
Fact: While bankruptcy does have a significant impact on your credit score, it’s not permanent. A Chapter 7 bankruptcy stays on your credit report for ten years, and Chapter 13 stays for seven years. By managing your finances responsibly after bankruptcy, you can rebuild your credit.
Myth 2: You Will Lose Everything if You File for Bankruptcy
Fact: California’s bankruptcy laws include exemptions that protect essential assets, like your home, car, and personal belongings, in most cases. In Chapter 13, you typically retain your property while repaying debts through a structured plan.
Myth 3: Bankruptcy Means You’re Financially Irresponsible
Fact: Many factors can lead to bankruptcy, including medical emergencies, job loss, and economic downturns. It’s not a reflection of personal failure but often a necessary step toward financial recovery.
Myth 4: All Debts Are Wiped Out in Bankruptcy
Fact: Certain obligations, like alimony, child support, student loans, and some tax debts, are generally not discharged in bankruptcy. It’s essential to consult with a bankruptcy attorney to understand which debts can be eliminated.
Myth 5: Filing for Bankruptcy is a Complex and Expensive Process
Fact: While bankruptcy does require careful planning and legal expertise, many bankruptcy attorneys in Los Angeles offer affordable services and payment plans. Having professional guidance ensures that the process goes smoothly.
Myth 6: You Can Only File for Bankruptcy Once
Fact: There are restrictions on how often you can file for bankruptcy, but it’s not a one-time option. You can file for Chapter 7 again after eight years or Chapter 13 after two years (from the date of filing the previous Chapter 13).
Myth 7: Chapter 7 is Always Better Than Chapter 13 (or Vice Versa)
Fact: Both Chapter 7 and Chapter 13 have specific advantages and drawbacks. Chapter 7 is quicker and may discharge most unsecured debts, but you may have to liquidate some assets. Chapter 13 allows for a structured repayment plan, giving you more control over your assets. Consulting with a legal professional helps you determine the best option for your situation.
Myth 8: You Can Hide Assets When Filing for Bankruptcy
Fact: Concealing assets during bankruptcy is a serious legal offense that can result in fines or even imprisonment. Full transparency is required, and a trustee is assigned to oversee your case.
Myth 9: Bankruptcy will Relieve Stress Immediately
Fact: While bankruptcy offers relief from creditors and a path toward financial stability, it’s not an immediate or stress-free solution. The process requires time, effort, and a commitment to managing your finances differently in the future.
Myth 10: Businesses Can’t Recover from Bankruptcy
Fact: Bankruptcy isn’t always the end for businesses. Chapter 11, often used by companies, allows them to reorganize and continue operations. Many well-known companies have successfully emerged from bankruptcy.
Contact Los Angeles Bankruptcy Attorneys, Wadhwani & Shanfeld
Bankruptcy, whether Chapter 7 or Chapter 13, is a complex legal process, and misconceptions can hinder your ability to make informed decisions. By understanding the facts and debunking the myths, you can approach bankruptcy with clarity and confidence.
If you’re considering bankruptcy in Los Angeles, consult with Wadhwani & Shanfeld to evaluate your options, address your specific needs, and navigate the legal process effectively.