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Myths In The Practice of Bankruptcy Law

Myth 1

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) eliminated the right to file chapter 7 bankruptcy which is the discharge of debt without repayment while retaining assets.

False, False, False. I file as many chapter 7 cases now as I did prior to BAPCPA.

BAPCPA did increase the time involvement of client, attorney and trustee. The cost of filing doubled.

Myth 2

You can’t file chapter 7 bankruptcy if you have real estate, or a large value in personal property.

False. Property is a consideration in determining whether one can file chapter 7 or must file chapter 13. The consideration is the property value net of debt and whether in can be protected by available exemptions.

Myth 3

You can’t have retirement assets.

False. You can have $1,000,000 in qualified retirement plan assets. One debtor I filed had $195,000.00. He kept it all. Like many debtors he borrowed against the account. He’ll have to pay that back as originally contemplated. Other people cash their qualified retirement accounts to stave off bankruptcy. Later, they file anyway and no longer have that asset they could have saved.

Myth 4

You can’t get a discharge for gambling debt.

False. One debtor I filed a Foxwoods debt of over $10,000 that will be discharged. A different outcome may take place in other states like Nevada.

 

Myth 5

If you make a lot of money, say $100,000 you can’t file chapter 7 bankruptcy.

False. I’‘ve filed chapter 7 cases for single debtors making over $120,000 per year.

 

Myth 6

Once the bank starts foreclosure the real estate is lost.

False. First, filing a bankruptcy case will stay all collection matters. Chapter 13 plans allow for the debtor to come current by paying the arrearage over the life of the plan. A bankruptcy filing can stop a foreclosure up to the moment a Memorandum of Sale is signed.

 

Myth 7

Gamblers who suffer substantial losses can’t file bankruptcy.

False. One debtor I filed had over $60,000 in losses the year before filing. It’s important to disclose the losses.

 

Myth 8

Income you are presently earning will determine if you can file chapter 7 bankruptcy.

False. While “current monthly income” (CMI) is used to determine if one can file, that income is defined as income received and derived in the six months prior to the month of filing. This can make for bizarre results if the debtor was unemployed for a portion of that time and now has a well paying job (debtor makes out), or if the debtor had a well paying job for most of the time and is now unemployed (debtor is in a bad position).

 

Myth 9

A debtor can’t remove a mortgage or judicial lien from their primary residence.

False. I’ve filed chapter 13 plans stripping a 2nd and 3rd mortgages. The key is their must not be one dollar of security in the mortgages being stripped.

Judicial liens are dissolved by motion in bankruptcy court when they impinge on the debtor’s exempt interest. Recording of the allowed motion in the registry of deeds is required.