Serving Minneapolis, St. Paul, Bloomington, Edina, St. Louis Park, Roseville and All of Minnesota
Bankruptcy myths can be misleading therefore consumers who are considering bankruptcy can meet with a Neff Law Firm, P.A., experienced Minneapolis bankruptcy attorney in Edina or a St. Paul bankruptcy attorney in Roseville to get accurate information related to Debt relief in Minnesota. These Minnesota bankruptcy attorneys at Neff Law Firm, P.A., are often asked by consumers about the bankruptcy process and welcome the opportunity to meet in person with debtors to assist them in evaluating their options for debt relief. Some of the more common bankruptcy myths are set forth below:
The Minnesota bankruptcy lawyers at Neff Law Firm, P.A., have observed that there are numerous bankruptcy myths that get in the way of people exploring available debt relief options that may be available for them. Consumers who feel they are drowning in debt should not be mislead into thinking that they are trapped because of bankruptcy myths. The fear of losing it all may be greater than reality. Accurate bankruptcy information is important in allowing people a chance to possibly end their fear, anxiety and burdensome financial pressures. What follows are common bankruptcy myths that may get in the way of consumers pursuing available debt relief.
1. By filing bankruptcy a consumer's reputation is ruined.
This is not accurate. In today’s modern economy, filing bankruptcy has become a common event. So much so that unless the person filing for bankruptcy is a celebrity or is in some other way well known to the public, it is likely that no one other than the consumer and his or her spouse will even be aware of the bankruptcy filing. While it is a major, and usually positive, event in the life of the person filing, it generally is not something to which others will pay attention. Even though a bankruptcy filing is a public record, it is unlikely that anyone is going to search the public records to find out who has filed bankruptcy.2. The new bankruptcy law offers no debt relief.
This is not accurate. While the bankruptcy reform act, which many refer to as the new bankruptcy law, made numerous changes to the bankruptcy code, the truth is that most people will still be able to qualify for either a chapter 7 bankruptcy or a chapter 13 bankruptcy. In assessing whether an individual or a husband and wife can qualify for bankruptcy, it is important to understand the qualifications and requirements that apply to each type of bankruptcy and how those qualifications and requirements apply to each person’s financial situation. Listening to the myths about the bankruptcy law changes instead of meeting with a knowledgeable and experienced bankruptcy lawyer to discuss your particular situation could mean needlessly prolonging a disastrous financial situation when relief from the debt may be available.3. It is “extremely difficult” to file bankruptcy.
This is not accurate. While it is true the bankruptcy code can be complicated and that it may be difficult to understand how the bankruptcy code applies to a particular individual’s situation, the reality is that it is not extremely difficult to file bankruptcy. Filing bankruptcy, however, does require a commitment on the part of the consumer to provide complete and accurate information so that the documents necessary to file for bankruptcy can be properly and accurately prepared. The process can be made easier by the assistance of an experienced bankruptcy lawyer who understands the bankruptcy law and what information and documentation is needed for each type of bankruptcy.4. After filing bankruptcy a person will lose all of his or her property.
This is not accurate. Filing a bankruptcy does not destroy a person’s right to own property. Each individual situation is unique so that it must be analyzed in light of various factors including the type and value of the property owned, whether the property secures a mortgage, loan or other financial obligation, the debtor’s income, basic monthly expenses, the applicable exemption statutes available to the debtor and the type of bankruptcy filed. There are federal bankruptcy exemptions and federal non-bankruptcy exemptions as well as state exemptions. In Minnesota, a debtor can use either the federal bankruptcy exemptions or the Minnesota exemptions and the federal non-bankruptcy exemptions. The assistance of an experienced bankruptcy lawyer can be very useful in helping to determine which set of exemption laws will best fit the consumer’s needs. It should be kept in mind, however, that if a consumer owns property that secures a loan, such as a home secures a mortgage or a car secures an automobile loan, then after filing bankruptcy if the consumer wants to keep the property that secures the debt, then the consumer will need to keep making payments on the mortgage or loan. Depending on the facts and circumstances of the individual case, a consumer may be able to keep some or even a substantial amount of his or her property, provided that the person qualifies to do so under prevailing law and takes all appropriate steps to protect such property. Not filing because of the fear provoked by the myths surrounding bankruptcy could result in years of needless fear, stress and financial uncertainty. The best way to avoid the financial traps created by the fear provoking myths about bankruptcy is to take action to consult with an experienced bankruptcy attorney to have your case properly evaluated.5. A married couple must file bankruptcy together.
This is not accurate. A consumer can file bankruptcy individually or jointly with his or her spouse. Each individual situation must be assessed in terms of the particular facts and circumstances to determine what type of filing is better. There are some circumstances where a joint filing would be the better option and of course other situations where filing as an individual would be better. Only married couples can file a joint bankruptcy.6. Filing a bankruptcy will not hinder creditors from harassing a consumer.
This is not accurate. Under most circumstances filing a bankruptcy petition with the bankruptcy court provides an automatic stay from further harassment and collection activities of creditors. After the automatic stay goes into effect, none of the consumer’s creditors are allowed to contact the debtor or to otherwise engage in any further collection activities. There are remedies provided under federal bankruptcy law to prevent creditors from further harassment and collection activity after the filing of a bankruptcy.7. Filing a bankruptcy will cause a married couple to divorce.
This is not accurate. Filing a bankruptcy does not automatically create a basis for a married couple to divorce. The purpose of a bankruptcy is to provide debt relief, which may allow for a fresh start. Less debt may ease existing tensions in the marriage caused by financial pressures and make the couple feel more comfortable in their day-to-day lives. Each marriage relationship is different so that it is impossible to make any generalizations as to the effect of a bankruptcy filing on the marriage; but generally, it is the stress of dealing with excessive debt that is more harmful to a marital relationship than filing a bankruptcy, which provides relief from financial pressures.
8. Filing a Chapter 7 Bankruptcy wipes out all debts
This is not necessarily accurate. While filing a Chapter 7 Bankruptcy may provide substantial debt relief, it will not wipe out every type of debt a consumer may have. There are some debts that normally should not be expected to be cleared in bankruptcy including, but not limited to, student loans, financial obligations based on fraud, liability for injuries due to and alcohol or drug related accident for which the debtor is at fault, domestic support obligations like child support and spousal maintenance (alimony), criminal fines, restitution, and most tax obligations (except under certain limited circumstances). Additionally, if the consumer has a secured financial obligation such as a home mortgage or car loan and the consumer wants to keep the home or automobile, then to keep the secured property he or she will be obligated to continue making the payments on such obligations.9. An employed consumer cannot file a bankruptcy.
This is not accurate. Having a job does not prevent a consumer from being eligible to file bankruptcy. The law does require a consumer go through the “means test” to determine the type of bankruptcy, Chapter 7 or Chapter 13, for which the consumer may be eligible. The thrust of this requirement, however, is not to prevent people who are employed from filing bankruptcy, but rather to determine which type of bankruptcy is appropriate. In the case of a Chapter 13 Bankruptcy, having a job, or other regular income, is critical to being able to fund a Chapter 13 Plan.10. Medical bills cannot be discharged in bankruptcy.
This is not accurate. The bankruptcy law does not provide a bar to discharging medical bills. An unsecured medical bill not based on fraud and/or was not incurred as a result of an alcohol or drug related accident for the consumer is liable would normally be dischargeable in a Chapter 7 Bankruptcy.11. If I file for Chapter 13 I will have to pay back all of my debt.
This is not necessarily accurate. While the key aspect of a Chapter 13 Bankruptcy is making payments for the benefit of your creditors, it does not mean that 100% of your debt will have to be paid back during the life of your Chapter 13 Plan; in fact, depending on the consumer’s particular situation, the payback on general unsecured debt may be less than 25%. The amount of the monthly Chapter 13 Plan payment and the length of the Chapter 13 Plan (generally 36 to 60 months) will depend on multiple factors including, but not limited to, the results of the means test, the debtor’s income and basic monthly expenses, the value of any non-exempt property the consumer may have, and the type of debt (i.e. secured debt, deficiencies owed on secured debt, whether there are priority debts such as domestic support obligations, fines, restitution, some taxes, student loans). In general unsecured debts will be able to be discharged, if any remain, at the completion of the Chapter 13 Plan. Thus it is possible to have a Chapter 13 Plan that may only pay a fraction of the general unsecured debt. Upon completion of the plan the remaining general unsecured debt may be discharged. Certain debts, such as some tax obligations, must be paid in full during the life of the Chapter 13 Plan. Student loan debts are another type of debt that may not be dischargeable at the completion of a Chapter 13 Plan.12. Credit card debt cannot be discharged in bankruptcy.
This is not accurate. Usually, credit card that is an unsecured debt contract is dischargeable in bankruptcy, unless the credit card was obtained fraudulently or other fraud in involved in the use of the credit card. Further, if the credit card was used to pay otherwise non-dischargeable debt, such as tax liabilities, fines or restitution, then to the extent of that particular portion of the credit card obligation the credit card debt will be non-dischargeable. An example would be a credit card with a balance due of $5,000.00 of which $2,000.0 used to pay your real estate taxes—in such an case, generally only the $3,000.00 of that credit card obligation will be able to be discharged. Another exception to discharge of credit card debt might be using the card to obtain cash advances and/or to make luxury purchases to close in time to the filing of the bankruptcy.13. Filing for bankruptcy will destroy my credit for the rest of my life.
This is not accurate. Filing a bankruptcy by itself does not destroy a consumer’s credit for life; in fact, there are provisions in the bankruptcy law that requires there be at least 8 years between Chapter 7 filings. Generally, by the time a consumer files a bankruptcy, his or her credit standing has taken a serious hit and filing a bankruptcy may actually improve the consumer’s credit standing or credit score. Each consumer may re-establish his or her credit standing to varying degrees after filing bankruptcy, so there is no easy generalization as to what will happen to a particular person’s credit rating after the bankruptcy is filed. A consumer can generally start immediately to rebuild his or her credit after a bankruptcy is filed. While the fact of the bankruptcy filing will remain on the consumer’s credit report for 10 years, how you use credit after a bankruptcy filing may be more important than the actual filing of the bankruptcy. A consumer who wants to develop credit after filing a bankruptcy should be very attentive to his or her financial matters and keep a close eye on his or her debt-to-income ratio. Purchases, whether on credit or for cash, should be appropriate to the consumer’s needs, income and basic expenses of the consumer as opposed to his or her wants, wishes or desires. In other words, a consumer may want a new luxury car, but if his or her budget only allows for a used vehicle or a lower cost new vehicle, then that is the financially responsible choice that should be made. Usually it takes years for a consumer to get into the financial situation where a bankruptcy, so too it make take years to re-establish credit.14. Taking a second mortgage or a home equity loan to pay off debt is better than filing bankruptcy.
This is not necessarily accurate. Generally, it is not a good idea to exchange unsecured dischargeable debt for secured debt. When you take a second mortgage or equity line of credit to pay off credit card debt, you are in effect, giving your creditors your home equity—equity that they may otherwise never have been able to tap into for payment. A second mortgage and/or home equity line of credit also increases your basic living expenses by increasing your housing costs thereby decreasing the amount of money you have available to meet your day-to-day needs. As a result of less income available to meet living expenses, many consumers fall back on their credit cards to pay for discretionary expenditures and even basic needs and before long, their credit card balances are at the same level as before the home equity was tapped into making the financial stress even greater. It also increases the likelihood the consumer will default on one or more of the credit card obligations, thereby placing their house in jeopardy if they are unable to make the payments because they have too much credit card debt or they cannot make the payments because they are being garnished.15. Taking a loan on my 401(k) plan or other retirement monies to pay off credit card debt is better than filing bankruptcy.
This is not necessarily accurate. Generally, ERISA qualified pension and retirement accounts cannot be attached, seized, liened or otherwise attacked by a creditor. When you take a loan against your retirement account, giving your creditors your retirement funds—funds that they may otherwise never have been able to tap into for payment. Taking a loan against your retirement account has the effect of decreasing the amount of money you have available each month to meet expenses because you are obligated by the terms of the retirement plan to pay the money back, or suffer some serious tax consequences. Because you have less income available to meet living expenses, many consumers fall back on their credit cards to pay for discretionary expenditures and even basic needs. Before long, their credit card balances are at the same level as before the retirement account was tapped into making the financial stress even greater.16. I will lose my pension if I file for bankruptcy.
This is not accurate. Certain ERISA qualified pension/retirement plans are not even included in the bankruptcy estate and others type of pensions may be covered under prevailing exemption statutes. Depending on the type of pension/retirement account you have, the value of your pension/retirement plan and which set of exemptions you can use, you may generally be able to protect all of your pension/retirement account. An experienced bankruptcy attorney can assist you in determining whether you have the type of pension that is excluded from the bankruptcy estate and what exemption statutes can best be applied to your situation.17. I should pay back my friends and family members before I file bankruptcy.
This is not accurate. Family members, friends, and business associates are considered to be “insiders.” Payments made to insiders in the year or more prior to filing a bankruptcy may be determined to be preferential transfers (i.e. that you preferred to pay your family members, friends, business associates rather than your other creditors). The bankruptcy trustee can request the insiders pay to the bankruptcy estate the money the consumer paid to them and if it is not paid, the trustee can sue the insider and recover the money in that fashion. In any case, it is a dangerous practice to pay off insiders prior to filing the bankruptcy and may result in the bankruptcy being dismissed, the discharge, if one was granted, being revoked, and in some cases, bankruptcy fraud charges being pressed against the debtor.18. If I don’t want the bankruptcy court to take my car or other property that is fully paid for, I should transfer the title or property to a friend, family member or business associate.
This is not accurate. Depending on the circumstances, the bankruptcy court may go back 2 to 10 years to see what transfers of assets you have made to determine whether the transfers was a preferential transfer and/or a fraudulent conveyance (fraudulent transfer) to avoid creditors from getting access to the property or to fraudulently decrease the value of your bankruptcy estate.19. I can pick and chose which creditors I include in the bankruptcy.
This is not accurate. All creditors, whether they are friends, family members, business associates, must be included in the bankruptcy filing. It is important to list all possible creditors so that all dischargeable debts are discharged. Failure to list all creditors, no matter who they are, may result in your bankruptcy being dismissed, a creditor not being discharged and/or in some circumstances being charged with bankruptcy court fraud.20. Paying off an unsecured creditor so I do not have to list the creditor on my bankruptcy is okay.
This is not accurate. There are some very limited circumstances where an unsecured creditor may be paid off before filing. These circumstances, however, are very limited. Before attempting such a pay-off, the consumer should consult with an experienced bankruptcy attorney to find out how such a payment may affect the bankruptcy.21. I don’t need to list creditors who have “charged-off” my account.
This is not accurate. Even though the primary creditor may have “charged-off” what is owed as a bad debt, the creditor may still attempt collection, refer the debt to collection agency and/or sell the debt to a “debt buyer.” Listing ALL creditors, even those who have charged-off the debt, sold it or otherwise transferred the debt is the best way to protect you from future debt collection activities.
Legal Assistance with Debt Problems
A St. Paul bankruptcy attorney from the Neff Law Firm, P.A.'s, Roseville office in Ramsey County, or a Minneapolis bankruptcy attorney from the Edina office in Hennepin County can meet in person with a debtor and review all pertinent financial matters and answer relevant bankruptcy related questions. These twin cities bankruptcy lawyers can help a debtor evaluate his or her potential for relief from the burden of serious debt. The Minneapolis / St. Paul bankruptcy attorneys at Neff Law Firm, P.A., have decades of experience assisting debtors that are in the process of considering declaring bankruptcy.
Minneapolis Bankruptcy Attorney or St. Paul Bankruptcy Attorney
Debtors can meet with either a Minneapolis bankruptcy attorney at the firm's Edina office or a St. Paul bankruptcy attorney at the firm's Roseville office. These Twin Cities law offices are available to consumers throughout Minnesota including people living in Minneapolis, St. Paul, Edina, Roseville, Bloomington, Golden Valley, St. Louis Park, Robbinsdale, Brooklyn Center, Anoka, Columbia Heights, Oakdale, Eagan, Mendota Heights, Eden Prairie, Deep Haven, Minnetonka, Wayzata, Mound, Hopkins, Chaska, New Brighton, Chanhassen, Excelsior, Orono, Shakopee, Richfield, Brooklyn Park, Plymouth, St. Anthony and Maple Grove.
For an appointment to meet a Twin Cities bankruptcy attorney in the greater Minneapolis office in Edina, Minnesota or in the greater St. Paul office in Roseville, Minnesota please call Neff Law Firm, P.A.'s, central scheduling telephone number of (952) 831-6555.
