The answer is no, absolutely not. I always say, I want every client to come in, I want them to leave their worry and anxiety in my office and I want every client to sleep at night because I do too.

The point is, no. The way that bankruptcy works, you can file a Chapter 7 Bankruptcy, which is a complete forgiveness of all of your debts, and you can keep your house, you can keep your car, you can keep your worldly goods and possessions. You can keep all the money in your qualified retirement account, your 401(k), your pension, your IRA, your tax refund, and still get rid of your debts. Under the bankruptcy code and under the federal bankruptcy code in particular, there are what are called exemptions. Exemptions are what allow you to keep property.

The best thing always is to come in and let me walk you through this. Look, you can certainly find those things online and start doing these calculations yourself and saying, “Oh my God, I’m going to lose A, B, and C.” But at the end of the day, you’re not. Actually, for clients who have, and I certainly have those, who live in 4,000 square foot houses, the bankruptcy trustee may have no interest in their household goods and furnishings. I recommend a certified appraisal to appraise the household goods and furnishings. They’re worth a lot less than they think they are and they can still be protected under the bankruptcy code.

The answer is no. Congress revised the bankruptcy code in 2005, and under the 2005 amendments to the bankruptcy code, there’s something that was put in place called the Means Test. Don’t do it at home. That’s why you’ll notice on my website, I don’t have a tool that says, “Try this yourself and see what chapter you qualify for.” On paper, if you earn over a certain amount for a certain number of people in your household, it would look like you were automatically pushed out of the Chapter 7 into a Chapter 13 or Chapter 11 where you could instead have a clean slate on your debts in a Chapter 7.

With Chapter 7, you’re in and out of bankruptcy in a matter of months, life is good, you’re moving forward. You’d be forced into, if you didn’t qualify for Chapter 7 based on income, and it was a 13, that in that 13 you would be in it for a period of three to five years repaying a portion or all of your debt.

Don’t let the fear of having to pay back some of your debt stop you from coming in for a consultation. I work with that Means Test. There is jurisdictional law, federal law, local case law that can help bring you back from where you think, “Oh my God, I’m a Chapter 13 and I have to pay back money,” into, “Okay, now we’re at a Chapter 7, you’re getting a discharge of your debt.”

Certainly, there are times when someone is going to actually have to be a Chapter 13 bankruptcy, and that’s okay too because in a Chapter 13, even if you’re paying back a portion of your debt, all the collection efforts are stopped, lawsuits are stopped, interest and fees are stopped on all the debts, and it’s pretty much an interest free loan from the government to help rebuild, restructure, and get out from under your debt.

The work that I do after a client is finished with bankruptcy is make sure that their credit reports are perfect. This work is done under the Fair Credit Reporting Act (FCRA). I like to wait ninety (90) days after my client receives their discharge of bankruptcy. Then I have them request their credit reports in a specific way under the FCRA. I review their credit reports from all of the credit reporting bureaus, Equifax, Experian, Transunion to make sure that everything is reporting correctly. If it is not, we institute the dispute process. For all former clients, as a courtesy I offer credit report review once a year.

Generally, I want my clients to understand that they should be lucky to be able to keep their home and avoid a foreclosure. If you qualify for a loan modification, after reviewing your specific loan to see what you are eligible for, a safe baseline for a loan modification is that the arrears are put on the back end of the mortgage, the interest rate is lowered to somewhere around the going market rate, and your payment stays the same, goes down a few hundred dollars, or goes up slightly. Surely, results vary. Clients do see significant reductions in their mortgage payments.

Not always. Many clients get mortgage modifications without the need to file a bankruptcy. It can come down to questions of timing. If you are just falling behind on your mortgage payment or are current on your mortgage payment, it may not be necessary to file a bankruptcy. Is a sheriff sale scheduled? Then we may need to file a Chapter 13 Bankruptcy to stop the sheriff sale and buy time to put in for the loan modification. Do you have a significant amount of unsecured debt (credit card debt, medical debt, personal loans? Is this unsecured debt affecting your debt to income ratios for a loan modification? A bankruptcy may be in order.