As I meet with distressed clients who are under financial strain, I realize that many of them do not want to file bankruptcy because they have often been misinformed about the consequences of filing Chapter 7 or 13.
I had one debtor call me saying that she wanted to file Chapter 13 instead of Chapter 7 because she did not want to lose her car. She was very misinformed on the issue. One can keep their car whether they file Chapter 7 or Chapter 13 by either claiming it as exempt (depending on its value) or by re-affirming the debt (continuing to pay the note on time and/or signing a re-affirmation agreement with the financier).
Filing bankruptcy will not result in you losing your home. Most often, debtors can keep any real property that is their primary residence, including coops and condominiums. In D.C. there is an unlimited residence exemption, which means that all of a debtor’s interest in any real property that he uses as his residence is exempt from liquidation as long as he has owned the property longer than 1215 days before he files bankruptcy.
Bear in mind that different states have different rules for exemptions. Some debtors have tried to take advantage of this by moving to states with more favorable exemptions before they file bankruptcy. (Many shamed Wall Street executives have moved from New York to Florida to take advantage of Florida’s unlimited homestead exemption). There is a residency requirement, however, that requires a debtor to have lived in a state for 730 days before filing bankruptcy and claiming the exemptions of that state. If he does not meet the 730-day requirement, he can still file but will be forced to use the exemptions of his previous state of residence.
You won’t necessarily lose your credit cards after you file bankruptcy if you sign a re-affirmation agreement. If you have a credit card from a financial institution like a credit union, note that they may reserve the right to close your credit card if you file bankruptcy and choose not to re-affirm the card. You shouldn’t fret over this too much because there are other options that will help you re-establish your credit such as paying your car note on time or getting a “secured credit card” which limits the amount of credit you get to the amount of money you deposit into a savings account with a bank or other financial institution.
For an honest debtor, bankruptcy provides a fresh start in many ways. If you are considering filing bankruptcy and would like to discuss your situation with an attorney, please call The Ford Law Firm at (202) 507-6313 or email me directly at firstname.lastname@example.org.
Yaida Ford is the managing attorney of The Ford Law Firm, PLLC.