Creditors want to confuse or frighten you. Friends may have had bad information or correctly recall bankruptcy information that’s now outdated. Here are 10 myths about filing bankruptcy. Each and every one of them is wrong. Continue reading
The short answer is YES! You get to keep your tax refund whether you file a Chapter 13 Bankruptcy or a Chapter 7 Bankruptcy. The Bankruptcy Trustee and/or Bankruptcy Court are not going to take your tax refund and use it towards paying your creditors.
In a bankruptcy case, a certain amount of your assets are protected by exemptions. For an anticipated tax refund or tax refund that you have already received, the exemption under United States Bankruptcy Code (U.S.C.) § 522(d)(5) applies. It is known as the “wildcard” exemption. All you need to keep in mind is that a single person can exempt up to $12,725. For a married couple, it’s $25,450. This should be enough in exemptions to protect your tax refund from a bankruptcy trustee!
5 Bankruptcy Myths and the Reality Behind Them
- Myth: Bankruptcy relief is no longer available. Reality: The bankruptcy code changed in 2005. Prior to 2005, I was a bankruptcy paralegal. I saw the changes firsthand. Almost all of the relief available through bankruptcy before the changes to the law in 2005 survive in today’s bankruptcy code.
- Myth: Medical bills cannot be discharged in bankruptcy. Reality: Medical bills can certainly be discharged in bankruptcy. This myth is perpetrated by debt collectors, who think that they can scare people into paying back debts that otherwise can be included in a bankruptcy.
- Myth: A Chapter 13 Bankruptcy requires that you pay all of your creditors in full. Reality: No! A Chapter 13 Plan can range from paying general unsecured creditors nothing to paying them 100%. How much you are required to pay is determined by the balance of your disposable income, value of nonexempt assets, and the total amount of priority debts that you have.
- Myth: Bankruptcy keeps you from getting credit for 10 years. Reality: I don’t think so. In a Chapter 13 Bankruptcy, you can borrow money during the case. Individuals who have filed Chapter 7 get credit card offers shortly after their cases are discharged. This myth probably got its start in the fact that the Fair Credit Reporting Act allows the reporting of a bankruptcy filing for 10 years.
- Myth: There is a minimum amount of debt required to file a bankruptcy. Reality: Bankruptcy law does not set a minimum amount of debt required to file for bankruptcy. If your debt goes beyond your ability to pay, you can choose to file bankruptcy if it is a smart choice for your personal financial situation.