This is the final installment of a 3 part posting on some common myths about Bankruptcy. These were previously posted but I thought it might be helpful to revisit them so I have posted them again here.
Myth #8: I don’t Owe Enough, or I Owe Too Much to File Bankruptcy
The simple fact is that there are no limits to the minimum and maximum amounts of debt a person can have and still file for Bankruptcy. Technically a person could file if they owed only 1 dollar, of course this would be a very bad idea when you consider the costs involved. The Court costs alone will greatly exceed this amount, with the typical filing fee being a couple hundred dollars. However the reality is that peoples circumstances are different and while a person making $100,000 dollars a year or more wouldn’t usually file over five to ten thousand dollars a person on a fixed income taking home less than $12,000 dollars a year almost certainly would have no other choice. It is all relative, and recognizing this, the Congress has not placed absolute limits on debt amounts in the Code. (There are a couple of technical exceptions for very high debt amounts, but even in those circumstances they don’t prevent filing out right, they just effect the debtor’s eligibility for particular chapters of the code).
Myth #9: I Make Too Much or Too Little to File for Bankruptcy
This myth is similar to the last one it’s all relative. However, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 did place limits on income that can act in some circumstances to prevent high income people from selecting to file a Chapter 7 Bankruptcy, nothing precludes them from filing another form of Bankruptcy such as a Chapter 13 Bankruptcy. I take a closer look at the Bankruptcy Abuse and Consumer Protection Act in the section of my book entitled a “Brief History of Bankruptcy,” and I deal specifically with the issues regarding Chapter Selection in the section of the book entitled “Types of Bankruptcies/Choosing the Right One for You.”
Myth #10: If I File It Will Destroy My Husband or Wife’s Credit
Nope, nothing in the Bankruptcy Code requires a person to file with their spouse, or even tell their spouse that they are filing. As we well know not all people are 100% truthful with their spouses about their financial situation. I have had this issue come up at least a couple of times a year since I started doing Bankruptcy work. The truth is it is possible to file without telling your spouse and in fact you probably will be able to prevent them from ever knowing about it, assuming they don’t pay much attention to your finances. However I don’t recommend it. In fact, in my practice I wouldn’t do it. I know some attorneys who have done this type of thing but it’s really not a good idea. That being said, I often have filed for one spouse or the other so that they can eliminate all or most of their debt and yet still have one person in the relationship with really good credit. This technique can be quite useful in certain circumstances. The particulars of this are a bit advanced for this book. I would suggest that you consult a good Bankruptcy attorney who is well trained and familiar with the law before considering this type of individual filing.
The general rule is if you don’t file it doesn’t affect your credit. This means no negative hit to the credit report, but also means that in the case of joint debts the person who files may not have to pay, but the person who didn’t file still does.
For more information about this issue and many more buy the book.
