Consumer Bankruptcy

Debunking the Biggest Bankruptcy Myths

One of the biggest reasons consumers hold off on filing for bankruptcy has to do with the myths surrounding the process. Misconceptions are often the reason behind these myths. Debunking these bankruptcy myths can shed light on the legal process that can help (and has helped) so many people, including an estimated 885,000 American consumers last year.

Myth 1: Bankruptcy Irreversibly Damages a Consumer’s Credit Score

While, yes, a bankruptcy case will almost certainly hurt a consumer’s credit score, this damage is far from permanent. In fact, many consumers have successfully rebuilt their credit scores after successfully completing a bankruptcy case.

Bankruptcy Trends

Consumer Bankruptcy Filings Increase in August

Bankruptcy filings increased in the month of August for all chapters of consumer bankruptcy cases, according to a new study conducted by Epiq. A total of 35,355 bankruptcy filings were reported in August, which represents a 10 percent increase from the total of 32,276 reported in August 2021.

Commercial bankruptcy filings also increased by six percent in August. A total of 1,861 filings were made in August 2022, as compared to the 1,753 cases filed in August 2021. Individual bankruptcy filings increased by 10 percent. A total of 33,494 filings were made in August 2022 and 30,523 were filed in August 2021.

Bankruptcy Law

What Debts Are Not Erased in Bankruptcy?

Not all debts can be discharged in a consumer bankruptcy case under the U.S. Bankruptcy Code. These debts will remain with the consumer even at the successful close of the Chapter 7 bankruptcy case.  While these debts may remain with the consumer, many of his or her other consumer debts will not. The goal is that with the discharge of other debts, the consumer will have extra money to be able to pay down these non-dischargeable debts.

For the most part, the consumer debts that are discharged include credit card debt, medical bills, past utility bills, personal loans and in some cases student loan debt. Many of these non-dischargeable debts cannot be eliminated due to public policy interests, such as child support.

student loan debt, Student Loans

Will Discharging Student Loan Debt Become Easier?

Student loan debt has traditionally been extremely difficult to discharge in bankruptcy. For years, student loan borrowers and advocates have been pushing for legislation to make this process easier. The Biden administration has made statements indicating they will make this process easier in the future, although it is unclear when or if this will ever happen.

It is not impossible to discharge student loan debt in bankruptcy. The bankruptcy code does allow for it, but the test to demonstrate the need for discharging student loan debt has been difficult for borrowers to prove. Unlike other consumer debts, to receive a discharge from their student loan debt, the borrower must prove that repaying these loans would put an undue hardship on them. Unfortunately, the definition of what qualifies as an “undue hardship” is found within the U.S. bankruptcy code, which means defining this standard has been left to individual courts. Certain jurisdictions have made the standard next to impossible to meet, while others have been somewhat more lenient. Regardless, no consistent standard has been set.

Bankruptcy Law, Consumer Bankruptcy

Understanding Bankruptcy

Many people view bankruptcy as an intimidating and complicated process. While bankruptcy can have its complications, many of the fear surrounding it has more to do with consumers not fully understanding the process itself. Bankruptcy is a legal proceeding that allows individual consumers or businesses who are struggling with debt to eliminate these debts and start over. The process is meant to help consumers and is not something to be feared.

All bankruptcy filings are heard in special federal courts set up throughout the 50 states. Bankruptcy procedures are governed by the U.S. Bankruptcy Code, although states, including Florida, can enact their own rules that preempt federal procedures.

Bankruptcy Law, Consumer Bankruptcy

Is It Possible to Refinance a Mortgage after Bankruptcy?

One of the biggest fears expressed by bankruptcy filers is how a bankruptcy case will affect their ability to receive financing in the future.  While having a bankruptcy on a person’s credit report can make it more difficult to qualify for a mortgage, it is possible for someone who has completed bankruptcy to refinance his or her mortgage after the case is successfully closed.

A number of factors can influence how easy it is to refinance after bankruptcy, including the type of bankruptcy, whether it be a Chapter 7 or Chapter 13 bankruptcy. The type of mortgage loan that the borrower is looking to refinance can also heavily influence this.

Consumer Bankruptcy, COVID-19

Consumer Bankruptcy Filings Level Off in August 2021

Bankruptcy filings leveled off last month, according to figures from technology company, Epiq. The company compiled filings through their AACER bankruptcy program which showed that in the month of August, 32,225 new bankruptcy cases were filed, including Chapter 7 and Chapter 13 consumer bankruptcy cases. This figure is down slightly from the 32,391 reported in July 2021.

Despite the fact that consumer bankruptcy filings have decreased, commercial bankruptcy filings have increased approximately one percent from July 2021 with 1,724 cases filed.

Consumer Bankruptcy

Bankruptcy Filings Fall to Levels Not Seen Since 1985

Bankruptcy filings have fallen to levels not seen since the mid-1980’s. The low number of filings are credited to the government aid and stimulus checks issued since the COVID-19 pandemic.

According to statistics from the Administrative Office of the U.S. Courts, 462,309 individuals and companies filed for bankruptcy in the fiscal year ending June 30, 2021, which is a 32 percent decrease from the previous year. The office also noted that this figure was the lowest one reported for a 12-month period since 1985.

Personal bankruptcy filings decreased 33 percent to approximately 444,000 over the course of a year. Business filings similarly declined, although by a lower percentage. Business bankruptcy cases dropped by 17 percent to approximately 22,500 filings.

Bankruptcy Law, Consumer Bankruptcy

The Cost of Filing Bankruptcy in 2021

Filing for bankruptcy comes with its own set of costs. It may seem counterintuitive that a person who is having difficulty paying his or her bills can pay extra costs to receive relief from his or her financial obligations. However, just because someone is not able to pay his or her bills should not prevent them from hiring an attorney to file their bankruptcy case. While “do it yourself” projects may be a good idea around the house, there are reasons to let a professional handle your bankruptcy filing.