Bankruptcy Myths Debunked: Common Misconceptions and Realities
In harsh economic times, New Orleans private citizens and businesses alike may require the aid of bankruptcy to bring stability to their financial standing. Bankruptcy is often seen as a last resort for individuals facing overwhelming financial burdens. There are numerous misconceptions surrounding the process that may deter individuals from exploring this option.
So today, we want to debunk some common myths surrounding bankruptcy in New Orleans. By addressing these misconceptions head-on, we aim to empower individuals with a better understanding of the viability of declaring bankruptcy.
But first: what are the three common forms of bankruptcy?
Bankruptcy is a financial tool that can be useful for individuals and businesses facing overwhelming debt. They have a few options of how to go about this process, including Chapter 7, Chapter 11, and Chapter 13 bankruptcy. Each chapter serves different purposes and caters to specific financial situations.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is designed to provide individuals with a fresh start by eliminating most of their unsecured debts. Unsecured debts are financial obligations, such as credit card debt, personal loans, medical bills, and utility bills.
In this process, a trustee is appointed to sell non-exempt assets to repay creditors. Non-exempt assets are possessions that are not protected under bankruptcy laws and can be sold or liquidated to repay debts. Keep reading to learn more about these non-exempt assets, because many assets are protected, allowing individuals to retain essential possessions. Chapter 7 bankruptcy is generally suited for individuals with limited income and significant debts.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy primarily applies to businesses, but it can also be used by individuals with substantial debts and complex financial situations. It focuses on reorganizing and restructuring debts to allow the debtor to continue operating their business. Under Chapter 11, the debtor proposes a plan to repay their debts over time, often through renegotiating contracts, reducing expenses, and restructuring obligations. Chapter 11 bankruptcy provides flexibility and the opportunity for businesses or individuals to regain financial stability without starting over.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a repayment plan that allows individuals with a regular income to repay their debts over three to five years. This chapter is suitable for individuals who want to protect their assets, particularly their homes, from foreclosure. The debtor proposes a repayment plan to the court and a trustee is appointed to oversee the distribution of payments to creditors. Chapter 13 enables individuals to catch up on missed mortgage or car payments and address other priority debts while retaining their assets.
Each chapter has specific eligibility requirements accompanied by a complex legal process. Seeking the guidance of an experienced New Orleans or South Louisiana bankruptcy attorney in determining the most appropriate course of action based on your individual circumstances.
The 4 common myths of bankruptcy
- Bankruptcy affects your credit for 10 years: The most common myth about bankruptcy is that it irreparably damages your credit for a decade. While it is true that bankruptcy has a significant impact on your credit score, the notion of a 10-year credit ruin is not true. The reality is that bankruptcy remains on your credit report for seven to 10 years, depending on the type of bankruptcy filed. However, this does not mean that you will be unable to rebuild your credit during this period.
With responsible financial management, many individuals find that they can qualify for new credit within a few years, especially if they actively work towards improving their financial standing.
- You will have to give up all of your valuable possessions: In New Orleans, bankruptcy laws provide exemptions that protect specific types of property from being seized to satisfy debts. These exemptions typically cover necessities such as clothing, furniture and personal items. Furthermore, specific exemptions exist for primary residences, vehicles, retirement accounts and other essential assets.
Common non-exempt items that may be sold off in bankruptcy proceedings include luxury items, valuable collections, additional properties, expensive jewelry, stocks, bonds, and non-retirement investment accounts.
Work with a trusted New Orleans bankruptcy attorney who can guide you through the exemption process, ensuring that you maximize the protection available to you.
- New laws will not let you file for bankruptcy: While bankruptcy laws have evolved over time, they still provide individuals with the opportunity to seek relief from overwhelming debt. In reality, the laws governing bankruptcy have become more nuanced, requiring individuals to meet specific eligibility criteria and follow prescribed procedures.
With the trusted experience offered at The Law Offices of James A. Graham, our team of New Orleans bankruptcy lawyers can help you navigate these complexities and help you understand the requirements for achieving a productive bankruptcy.
- If you are married, you cannot file for bankruptcy alone: Contrary to popular belief, being married does not prevent an individual from filing for bankruptcy alone. While joint bankruptcy filings are an option for married couples, it is entirely possible for one spouse to file individually.
Whether filing jointly or separately, it is essential to evaluate each spouse’s financial situation and determine the best course of action. Depending on the circumstances, filing individually may provide unique benefits, such as protecting the non-filing spouse’s credit or exempting certain assets.
Consulting with a bankruptcy attorney at The Law Offices of James A. Graham will help you understand the implications of filing jointly or separately, allowing you to make an informed decision based on your specific circumstances.
If you or your business are in a difficult financial standing, our team can be the support you need as you consider a fresh start. At The Law Offices of James A. Graham, we are proud to serve the South Louisiana community. Call or contact us today at our convenient New Orleans or Slidell bankruptcy law offices to set up a consultation.
James A. Graham is the founder of The Law Offices of James A. Graham, a divorce, immigration, bankruptcy & Social Security Disability law firm located in New Orleans, LA. He represents people in need of a variety of legal services throughout Louisiana.