The term “bankruptcy” brings about many negative feelings and beliefs. With many people suffering financial hardship, particularly during the current COVID-19 pandemic, bankruptcy is sometimes the best alternative for individuals and businesses.
Even if bankruptcy ends up being the best choice for you, not all hope is lost. You may not lose your home. You may not have to continue to deal with creditors. You may be able to eliminate all your debt. But one thing is for certain, you can get your life back.
The truth is that there are many myths related to bankruptcy. In this article, we will debunk the most common misconceptions about bankruptcy in Florida to help you make the best financial choice for you and your family.
1. I will lose everything, including my home.
This isn’t necessarily true. Depending on the type of bankruptcy that you file, you may be able to keep your home or property. For example, a Chapter 11 bankruptcy case involves negotiating loan terms with lenders and creditors without resorting to liquidation. If you are successfully able to negotiate terms with creditors, then you may be able to keep your home, even after filing for bankruptcy. In fact, in the State of Florida, most common exemptions from bankruptcy include the individual’s “homestead”, which is his or her personal, primary home.
2. Bankruptcy in Florida automatically eliminates all of my debt.
Possibly. This depends on the type of debt you have incurred. For example, debts related to alimony and child support are non-dischargeable. If you are having difficulty paying alimony and child support, these obligations can potentially be modified through the Court.
However, if you have incurred unsecured debt, such as credit card debt or personal loans, you may be able to negotiate or eliminate that debt, depending on the type of bankruptcy that you file.
3. Creditors will still harass me.
Again, this depends on the type of bankruptcy case that you file. Here is what the bankruptcy process in the State of Florida looks like:
In a Chapter 7 bankruptcy case, if the Court has ruled in your favor, the Court will send a “discharge order” to all of your creditors releasing you of your obligations to repay. This means that by law creditors must stop harassing you with incessant calls and threatening letters.
In a Chapter 13 bankruptcy case, your debt will not be discharged until all of the requirements of the repayment plan have been met. You are, however, protected from collections, creditors, and potential garnishments during this time as long as you are complying with the terms of the plan.
4. Bankruptcy is a permanent fix.
As mentioned above, bankruptcy can be a permanent fix, depending on the type of bankruptcy that you file. For example, in some cases, it can help eliminate debt, but you may end up being responsible for a debt repayment plan instead. However, bankruptcy can involve negotiation terms with creditors.
5. My spouse will have to file for bankruptcy, too.
This depends on whether or not both spouses are in debt and what assets are in whose name. For example, if you file for Chapter 7 bankruptcy in Florida, any property that you and your spouse own together becomes a part of the case. In Chapter 7 bankruptcy cases, assets can be liquidated to pay off debt. If only one spouse files for bankruptcy, then only his or her debts will be discharged. However, this means that the other spouse is still required to pay.
One advantage to only one spouse filing for bankruptcy is that the bankruptcy is only reported on his or her credit. Therefore, if you and your spouse have future plans to make a large purchase or investment together, then one spouse will still retain healthy credit.
6. I’ll never be able to secure a loan in the future.
It will take time, however, by starting over, getting a better hold on debt and finances, and repairing your credit over time, you will likely be able to secure a loan in the future.
7. Bankruptcy means that I live beyond my means.
Maybe. It can be easy to always buy that new car, that beautiful cabin on the lake, or the latest and greatest tech gadget. It can also be easy to take advantage of those high spending limits on credit cards. In these cases, if you are a big spender beyond what you can realistically afford, then you might be living beyond your means. It’s important to take charge of your finances and develop better financial habits if you want to avoid filing for bankruptcy.
On the other hand, life can have a tendency to throw curveballs, which can send even the most financially-savvy individuals into financial hardship. Life-changing events, such as death, an accident, or unexpected job loss are all examples of events that can happen to anyone and can potentially lead to bankruptcy.
8. Bankruptcy will remain on my credit report forever.
Again, depending on the type of bankruptcy you file, your bankruptcy can remain on your credit report for approximately seven years. However, it’s important to remember that bankruptcies become public record. So, even if the credit bureaus dismiss your bankruptcy after only seven years, it can remain a public record for longer.
If you have questions about how bankruptcy will impact your credit records, be sure to speak with a financial advisor or a bankruptcy attorney in Florida.