Seal of the United States bankruptcy court. Church of Scientology attorney Steven Hayes bought rights to the Cult Awareness Network assets during its bankruptcy proceedings. (Photo credit: Wikipedia)

Bankruptcy was enacted by Congress to give debtors a chance at a fresh financial start from their burdensome debts. The Supreme Court made this very point about the purpose of filing bankruptcy when it wrote this in a 1934 decision:

“It gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

The overriding idea behind filing for bankruptcy protection is to protect enough of your assets in order to be able to make a fresh start. That is why state exemption laws have been made for the benefit of the debtors. Filing for bankruptcy protection guarantees certain assets for the debtors to make the new start.

Nevertheless, it is still a good idea to avoid filing bankruptcy when you can, so here are 5 good reasons to avoid filing bankruptcy if at all possible:

1. Not all your assets are protected: Depending on which bankruptcy you file, and depending on whether you use state or federal exemption laws, not all assets are protected against liquidation. You can lose a house, your cars, some retirement accounts, and any asset that is not protected by full exemption amounts when you file. In some situations, you may not lose these assets through other court avenues.

2. Not all debts are discharged by bankruptcy: Obligatory debts such as student loans, certain tax debt, child or spousal support, certain court orders, and fraudulent debt cannot be discharged in most circumstances in a bankruptcy. An exception of these bankruptcy laws can be made for undue hardship if the debtor can prove their case before a bankruptcy court. If much of your debts are in these categories, it may be wise to forgo filing bankruptcy.

3. Your credit score will take a bad hit for up to 10 years: Filing bankruptcy stays on your credit score for up to 10 years. The initial filing can cause your credit score to tumble as much as 250 points if your scores have not already done so. People can live without good credit scores, but good scores help you in making various loans and obtaining rental property.

4. Creditors can foreclose or repossess your property: The automatic stay of bankruptcy prevents any collection activity like foreclosure and repossessions during the bankruptcy process, but most secured liens are held with the condition that filing bankruptcy is a default of the loan, regardless of your payment history. That means the creditors can start the foreclosure or repossession process as soon as the automatic stay is lifted.

5. There may be debt relief alternatives to filing bankruptcy: Sometimes doing nothing, negotiating with creditors, debt settlement, and debt management can all be alternatives to filing bankruptcy, depending on your particular situation.

Although filing for bankruptcy protection is the Constitutional right of every American, you might want to avoid filing if you can. Bankruptcy laws are complex and each individual situation is different. It would be wise to consult with an experienced bankruptcy attorney before deciding to file.

Seal of the United States bankruptcy court. Church of Scientology attorney Steven Hayes bought rights to the Cult Awareness Network assets during its bankruptcy proceedings. (Photo credit: Wikipedia)

The Reaffirmation Agreement

A lot is written on bankruptcy law about the reaffirmation agreement in a Chapter 7 bankruptcy. A reaffirmation agreement is a contract between the debtor and creditor where the debtor agrees to be responsible for the debt the contract entails as if the debtor never filed bankruptcy against that particular debt. If there is a default later on, the debtor can be sued by the creditor as if the debt never went through bankruptcy.

Reaffirmation agreements are normally made on secured assets. In effect, a reaffirmation agreement made with a creditor effectively voids any effects filing a bankruptcy has on the debt. That is why bankruptcy law allows only the bankruptcy court the privilege of deciding whether a reaffirmation agreement is right for a debtor.

Before a debtor is allowed to go into a reaffirmation agreement with a creditor, a bankruptcy judge has an legal obligation by bankruptcy law to assure from the facts presented that the reaffirmation agreement represents a voluntary act by the debtor and that the reaffirmed debt will not pose an undue hardship on the debtor or his dependents. The debtor’s lawyer has the same responsibility to the bankruptcy court concerning the law. The attorney must sign a document stating that (1) the reaffirmation agreement is a fully informed and voluntary agreement by the debtor; (2) the agreement does not impose an undue hardship on the debtor or his dependents; and (3) that the attorney fully advised the debtor as to the legal effect and consequences of the reaffirmation agreement and default under the agreement.

A reaffirmation agreement is serious business, and unless the bankruptcy court approves the agreement, it will remain void and null.

The Ride Through Agreement

A ride through agreement is a different kind of agreement in bankruptcy terms. The automatic stay of bankruptcy prevents secured lien holders from foreclosing on or repossessing assets during the bankruptcy unless they successfully petition the court to lift the stay.

Just because you have filed bankruptcy and kept your payments up on secured property does not necessarily mean your creditors will allow you to ride through the bankruptcy in possession of the property. Many of the contracts for secured loans include a bankruptcy clause. This clause states that if you file bankruptcy during the contract term, you are automatically in default whether or not you are up to date on your payments. As a result, many secured creditors will foreclose or repossess the assets when the automatic stay has been lifted even if the bankruptcy is still in process.

A ride through agreement is where you and your secured creditor agree to allow you to continue paying on the loan during the bankruptcy, and the creditor agrees not to foreclose or repossess the asset. You, therefore, ride through the bankruptcy as the in tact owner of your asset and will continue to own it as long as you make payments.

Some creditors will voluntarily allow ride through agreements where others will not. Because of these individual preferences, bankruptcy laws are continually being challenged when it comes to ride through agreements.

Recent precedences have been set by court cases that influence how courts handle ride through cases. In North Carolina recently, In re: Bowden , the court found could get a ride through without further judicial action when the debtor’s lawyer refused to sign off and struck down the creditors right for a reaffirmation agreement.

Related articles

• Taxes Due After a Discharged Bankruptcy (betterbankruptcy.com)
• A Shady Side of Debt Collections in Washington State (betterbankruptcy.com)
• A Chapter 7 Requires a Debtors Statement of Intention (betterbankruptcy.com)
• Bankruptcy and the Adversarial Proceedings (betterbankruptcy.com)

What if there was a shady side of the law that allowed federal bankruptcy court trustees to hide things from you for up to a year before you found out you lost your assets to your creditors after filing for bankruptcy protection? What kind of protection would that be for debtors?

No one would like that I don’t think, but in the state of Washington, a current debt collection rule of procedure heavily favors the debt collectors who are in the process of using the courts to prove their claims against debtors. This rule of procedure can have the affect of allowing the debt collectors to hide the fact they have a judgment against you for over a year before they make attempts to collect.

Having a court judgment against a creditor for over a year in Washington is important because of two reasons. First of all, it is more difficult to undue a judgment more than a year after the judgment was issued, and it is advantageous to allow the minimum interest on judgments to accrue for the year. This matured judgment makes it easier to attach liens and seize accounts.

What is so special about Washington’s legal collection procedures that makes this shady side of collections work?

The one advantage debt collectors have over debtors is legal collections, and when debtors fail to respond to lawsuits, a judgment is normally always rendered in favor of the debt collectors. A judgment in the hands of a debt collector is the legal means they need to attach liens or seize debtor’s assets. Both is the backbone for making money in the collections industry. Once a lawsuit judgment has been entered by the court in favor of the collection agency, it is just a matter of time before they collect the debt plus interest and sometimes, legal fees.

There is nothing shady about going through courts to legally collect a debt, but there is something shady about the process when the debtor is not aware a judgment has been issued against them, and that often happens in the state of Washington.

In Washington, debt collectors are allowed to serve the debtor with the Summons and Complaint of a lawsuit before filing with the court. This means the summons and complaint will not have a case number when the debtor receives it. The debtor may call the court to confirm the lawsuit, but the court will not have recorded that the lawsuit exists and will answer accordingly. Many debtors might mistakenly think that no response is required to the summons and complaint because they do not understand in Washington a lawsuit does not have to have a filing number to begin the legal process.

As a result, the debt collectors need only wait 20 days without a response from the debtor and then file the lawsuit. Since the summons and complaint is the debtor’s legal notice of any legal actions, the debtor may never hear from the court again. The debt collectors will lay in waiting for a year, and the debtor’s worse nightmare then begins.

Shady? I believe anytime you hide things in a court of law, it is shady for one side or the other. I think debt collectors must have a lot of money and great lobbying in the state of Washington to get away with that type of advantage. Shame on you Washington! Where is your since of fair play?

Related articles

• Debt Collections and a Seedy Side (betterbankruptcy.com)
• Fair Debt Collection – Thwarting Abusive Collections Tactics (lexingtonlaw.com)

Sketch of Richard Mentor Johnson freeing a man from debtors' prison. Johnson was an advocate of ending the practice of debt imprisonment throughout his political career. (Photo credit: Wikipedia)

Probably the only thing worse than losing your home in a Chapter 7 bankruptcy is actually going bankrupt to begin with. The reason people file for bankruptcy protection is to get a fresh financial start while protecting what assets they can. Sometimes, it just does not work out that way, but regardless, when things go wrong in a Chapter 7, there is still the hope things will be better on the other side of filing, and they usually are.

A man blogged on a bankruptcy forum website today and had this to say about when things have gone wrong for him in a Chapter 7, “I initially reaffirmed my primary residence, but apparently it is too valuable to be exempt. I have already lost an adversarial proceeding and the Chapter 7 trustee won the right to transfer the property. It was not possible to pay the mortgage; my home and a rental house were on the same mortgage, and the Trustee seized the rent long ago. What are they required to do by law to force me out? Required notice and service? At this point I am simply trying to get enough time to find a new residence and get everything out.”

This particular debtor is currently frustrated with the bankruptcy process. An adversarial proceeding, often referred to as an AP in bankruptcy talk, is one of the hardest events to go through during a simple Chapter 7 bankruptcy. Any creditor or the trustee can file an AP if there is a legal question about a particular debt. That means the bankruptcy court judge will have to decide what the law says about a particular question raised on a debt during an AP. In this case, the trustee filed the AP because the property in question had enough equity to be liquidated to pay off the unsecured debts of the filing debtor. The AP had to be filed because the debtor was trying to reaffirm the debt, and he lost his case to the trustee.

The property, the filing debtor’s home with rental property, must be sold and the equity used to pay off unsecured debts. The debtor may not like the ruling because he wanted to keep his property, but bankruptcy laws, especially for a Chapter 7, are designed to do exactly that- liquidate non-exempt assets in order to satisfy unsecured debt.

Evidently in this particular case, there was not enough homestead exemption on the property to cover the equity the filing debtor had in the property. Therefore, the trustee will seize the property, sell it at market value, pay off what is left on the loan, and give the homeowner the homestead exemption value of the property. The trustee will take the money that is left, including any rental money seized, and pay off what unsecured debts he can with the money.

The homeowner must vacate the property as laid out by either the bankruptcy court rules or state law, just as if the property was being foreclosed. Even though it seems things have gone bad in this particular Chapter 7 for these particular debtors, they still get a fresh chance at starting financially over. Sometimes, it might become obvious you will lose your home to bankruptcy. When things do go wrong in a Chapter 7, it might be best to cut your losses, vacate, and completely start over.

Related articles

• A Chapter 7 Requires a Debtors Statement of Intention (betterbankruptcy.com)
• Report of No Assets in a Chapter 7 (betterbankruptcy.com)
• Chapter 13 Dismissal and Why It Might Happen (betterbankruptcy.com)
• Chapter 7 Bankruptcy for a Family of Four (betterbankruptcy.com)

WEST HOLLYWOOD, CA - NOVEMBER 10: Octomum Nadya Suleman and her large family plus helpers launch their signature Milkshake at 'Millions of Milkshakes' on November 10, 2010 in West Hollywood, California. (Image credit: Getty Images via @daylife)

Becoming famous must not always be what it is cracked up to be. Nadya Suleman became famous in January of 2009 when she gave birth to the second full set of live octuplets to be born in the United States. She accomplished the amazing task by in vitro fertilization, an increasing controversial method or fertilization in a test tube that often produces multiple births.

Adding to the controversy that already existed, Suleman was in financial straights before the January 2009 births. She was unemployed, a single mom, and had been supporting her six other children with the aid of food stamps and Social Security disability benefits. She lived with her mother in a three-bedroom house that was in foreclosure at the time of the octuplets’ birth.

Now, Suleman is coming forward again with more financial woes. She has filed a Chapter 7 bankruptcy listing over $1 million in debt. According to the Associated Press, Suleman owes money to her father, the city’s water department, DirecTV, Whittier Christian School, and over $30,000 in rent payments to a four bedroom house. She listed a little over $50,000 in assets, which means she owes 20 times her net worth.

Suleman has been getting financially by through promoting the octuplet feat as a promotable novelty. After two years, the novelty has worn off with the public and reality has sit in. According to the news articles, amongst other things this famous mom has considered is turning to porn to support her clan.

Filing for bankruptcy protection may be the only sure fire way of being able to start over for the famous mom. It will certainly temporarily stop the collection activities that must be hounding her at the present. Unless Suleman develops skills that will enable her to support herself and her fourteen children, odds are she will be facing bankruptcy again some day sooner rather than later.

Suleman’s mother was once quoted as saying, “she has been obsessed with having children since she was a teenager.” If her mother is right, maybe it is time for Suleman to admit that fame has not been worth it, and for her to do something different for the sake of her children. Maybe her obsession is not working for the children.

So, how does society handle people like Nadya Suleman? Obviously, she and the children have become our society’s burden. Do we need to take a closer look at the science of in vitro fertilization and pass use laws to control these types of phenomenons? Should our court systems get into determining who is fit and unfit parents under such circumstances? Is Nadya Suleman a fit parent and does she have the right to bring more children into the world in vitro?

Nadya Suleman’s circumstances is raising many more questions than it is answers, but one thing is for sure, Suleman needs to file for bankruptcy protection. She most likely will need more than one filing if things do not financially change for her. The people who extend her credit should understand they do so at great risk, and therefore, they are just as culpable as Suleman for extending the credit.

The emergency room entrance of Parkview Hospital in Fort Wayne, Indiana. (Photo credit: Wikipedia)

One of the causes of being forced into bankruptcy comes from a high medical bill. Most people can avoid the medical bill trap by being vigilant on how hospitals handle collections on their bills to their patients. Here are some helpful tips on how to stay on top of your medical bill to avoid the medical bill trap:

1. Preregister. If you know you are going into the hospital for a stay, preregister and plan ahead. By doing so, you will know approximately how much your medical bill is going to be, thus avoiding the trap of uncertain surprises in your medical costs. Not all hospital stays are expected, so be aware of your emergency options. Hospitals emergency rooms are not allowed to turn you away in most states whether you have insurance or not.

2. Know your insurance coverage. If you have insurance, know what type of medical insurance you have, what it does and does not cover, whether it has deductibles and co-payments, and whether the hospital requires a certain amount to be paid upfront or not. Unless there is an emergency, stay at a hospital that is within your network. You can do this best when preregistering (see item #1). Check out all the doctors that will be working on you, if possible, to make sure they are in your network.

3. Provide the hospital a list of medications you currently take. If you are on any type of medication, take a current list of medications you take with you when you check into the hospital. If it is an emergency, it is a good idea to carry a list of medications you currently take inside of your car, so that you or a loved one can provide the list to the hospital emergency room admitting team. Include the names of the medications, the daily dose and when you administer them (am or pm).

4. Know the billing and collection methods for the hospital you prepare to use in advance. Some hospitals will bill your insurance and some will not. Ask in advance. Most all hospitals nowadays has a collections department or accounting department to help you with billing. Many hospitals will allow you to pay deductibles on time, and some will allow you to pay the deductibles or an outstanding bill over time without interest. Some state laws will not allow hospitals to charge interest on their bills, especially when they receive state and federal tax monies for their operations. You can ask about their collection policies before entering the hospital.

5. Synthesize you bills. Most hospitals will help you with itemized bills for your hospital. Doctors will normally send you separate bills, but some hospitals will help you synthesize the bills under one bill to make things easier. It never hurts to ask for help from either side. Keep good records of the bills you have and have not paid.

6. Stay consistent and current on your medical bills.Most states will not allow hospitals to become to pro-active in collections if you are using a community hospital. Always pay the hospital something each month even if it is less than what you agreed to pay on your bill. This will keep the bill collectors away from your door and you out of the court room.

bankruptcy (Photo credit: ruminatrix)

Personal Questions

What happens when you file bankruptcy, and you are keeping other people’s property for them? Do you have to list their property on bankruptcy documents as well?

These questions were asked during a bankruptcy forum website session by a blogging debtor. The debtor blogged, “My 21 year old son is back home living with me and brought his own furniture, etc. Do I have to claim those items as my personal property since it’s in my house? Also, my youngest son will be leaving in July to join the Navy. Are his possessions considered property that I’m holding for someone else?”

An Individual and Personal Matter

Filing for bankruptcy protection is an individual and personal matter. Most individuals, depending on the amount of disposable income they make, either file a Chapter 7 or a Chapter 13 bankruptcy. In either bankruptcy filed, the debtor is required to fill out personal asset schedules on the property they own. These schedules will be used by the bankruptcy court to check against state and federal exemption laws which allows the filer to keep the unsecured assets listed under most circumstances.

When you file bankruptcy as an individual, you need only report the assets you personally own on the schedules of assets. The debtor in the illustration does not need to list either of her son’s assets on the filing schedules. What she may need to do, though, is be willing to prove the assets belong to her sons and were not given to them by her just before filing. Hiding assets is considered fraud by bankruptcy courts and is prosecuted regularly.

Not including the assets of your grown children in the bankruptcy is the same as not including the assets owned by your husband if you are not filing jointly and live in a non-community property state.

Filing a Chapter 7 is the type of bankruptcy most affected by assets you list because all non-exempt assets YOU OWN will be liquidated to pay off unsecured debts. The bankruptcy court trustee will not take assets owned outright by other adults in the family if you are filing as an individual. Most Chapter 7 bankruptcies are no asset cases where the individual does not own any non-exempt assets to liquidate.

Unfortunately, when it comes to maintaining a household used by husband and children, you will have to list the household assets, including children’s toys and clothes, if you contributed to the cost of the assets and the household expenses in any way. The house may be in the spouse’s name, but each asset is viewed by the bankruptcy courts separately and in relation to the filing individual debtor.

Filing Bankruptcy Can Be Complicated

Determining what assets are non-exempt and individually owned can be a complex undertaking for people not familiar with bankruptcy laws. It is widely recommended that a layperson use a bankruptcy attorney when filing either a Chapter 7 or a Chapter 13 bankruptcy, especially if the Chapter 7 is an asset case.

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• A Chapter 7 Requires a Debtors Statement of Intention (betterbankruptcy.com)
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• Report of No Assets in a Chapter 7 (betterbankruptcy.com)
• A Chapter 13 Filed Pro Se Could End Up Being Dead on Arrival (betterbankruptcy.com)

Foreclosure Signs (Photo credit: ImageMD)

If a person who is in a Chapter 13 bankruptcy decides their house is costing them too much after their plan has been confirmed, and they decide they want to walk away from a mortgaged house that is underwater, what happens to the deficiency of the mortgage loan not paid off after the eventual foreclosure sale?

The foreclosure laws of your state will determine how a state views a deficiency on a foreclosure sale of property. Federal bankruptcy laws will determine how a deficiency is eventually handled during or after a bankruptcy has been filed, and depending on the type of bankruptcy filed.

There are two types of state foreclosures – judicial and non-judicial. States can use either or both types of foreclosure within their state guidelines when foreclosing on property.

A judicial foreclosure is where the foreclosure takes place in a state court after a mortgage lender has filed a foreclosure lawsuit to get property back that has been defaulted on the loan. The judicial foreclosure follows the court’s guidelines in seeing to it that the mortgage lender legally takes the property from the owners in a timely fashion.

A non-foreclosure is an informal way for a mortgage lender to take back property from a homeowner that has defaulted on their loan. Here, a designated agent of the mortgage company or an appointed trustee handles the foreclosure process for the mortgage lender. They must follow prescribed foreclosure laws to carry out the task, and supposedly is a faster and less expensive way to expedite the foreclosure process. Many states use this type of process in conjunction with judicial foreclosure to speed up the process.

Bankruptcy law is an entirely different matter for the foreclosure process. Where foreclosure laws are governed by state courts, bankruptcy laws are governed by federal courts and hold precedence over state laws when it comes to matters of priority.

A Chapter 13 is a wage earner’s plan that allows a filing debtor to make a plan to pay back all or part of unsecured debt. Secured debt payments must be kept current if the filing debtor plans on keeping the asset, and the arrears must be built into the plan. If the debtor wants to surrender the secured asset in a Chapter 13, he need only say so, and the asset will be surrendered to the lien holders for either foreclosure or repossession processing. According to bankruptcy laws, what is owed including any deficiency in a Chapter 13 bankruptcy will be discharged for surrendered property.

In the event a filer changes his or her mind about surrendering property during a Chapter 13, they need only make an amendment request for their change of plans to the court so the asset will be discharged at the end of the bankruptcy process. Any deficiency will automatically be included as part of the discharge.

Foreclosures frequently occur after a debtor defaults on a mortgage loan contract during a Chapter 13. Bankruptcy laws provide for the filing debt to change their mind if their financial circumstances change. Changing a plan during a Chapter 13 is a formal process that requires the filing debtor formally request any changes before the bankruptcy court. It is a good idea to have a bankruptcy lawyer representing you when you have to make these types changes.

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WASHINGTON - OCTOBER 20: Volunteers unfurl a giant banner printed with the Preamble to the United States Constitution during a demonstration against the Supreme Court's Citizens United ruling at the Lincoln Memorial on the National Mall October 20, 2010 in Washington, DC. The rally at the memorial was organized by brothers Laird and Robin Monahan who spent the last five months walking from San Francisco, California, to Washington to protest the court decision, which overturned the provision of the McCain-Feingold law barring corporations and unions from paying for political ads made independently of candidate campaigns. (Image credit: Getty Images via @daylife)

The United States Constitution, under Article 1, Section 8, authorized Congress to enact “uniform laws on the subject of Bankruptcy.” The laws have evolved over the years, and the Bankruptcy Code was instituted in 1978, codified under title 11 of the United States Code. It has since been amended several times since its enactment and is the federal law that governs the process of  bankruptcy cases today.

The process of bankruptcy is governed by the Federal Rules of Bankruptcy Procedures (FRBP) along with local rules from each bankruptcy court. The FRBP establishes what official forms are to be used in bankruptcy cases, and the legal procedures for the handling in bankruptcy court the various debt problems of individuals and businesses.

There are 90 bankruptcy districts located across the United States and its territories, and each state or territory has one or more districts. Each district has one bankruptcy court per district. These courts have the power to make decisions over all federal bankruptcy cases. They include a bankruptcy judge, an appointed U.S. bankruptcy trustee, case trustees, a bankruptcy court clerk, and various other supporting personnel.

There are six basic types of bankruptcies the courts serve to adjudicate the laws of bankruptcy. These are:

1. Chapter 7- The simplest kind of bankruptcy where the trustee liquidates non-exempt assets to pay off unsecured debt. Individuals, partnerships, and corporations can file this type of bankruptcy.

2. Chapter 13- A bankruptcy where the debtor makes a 3 or 5 year plan to pay off all or a part of their unsecured debt. It is often called a wage earner’s plan and is for individuals and partnerships.

3. Chapter 11- This bankruptcy is a type of reorganization plan specifically designed for a business to reorganize its debts and assets to pay off its unsecured creditors, while discharging others.

4. Chapter 12- This bankruptcy is specifically designed for family farmers and commercial fishermen who are in business and have a regular income from their business. The debtors make a 3 or 5 year plan to pay back a part or all of unsecured debts.

5. Chapter 9- This bankruptcy is designed specifically for municipalities who are having debt problems. It provides for financial reorganization of the municipality and can include municipalities that are cities, towns, villages, counties, taxing districts, municipal utilities, and school districts.

6. Chapter 15- This bankruptcy is designed to provide a jurisdiction for bankruptcies dealing with cases of cross-border insolvency. These cases involve debtors where the debtors or its property is subject to the laws of the United States and one or more foreign countries.

The overwhelming fundamental goal of the federal bankruptcy laws, according to the Supreme Court, is to give debtors a financial fresh new start from burdensome debts.

The process of bankruptcy is complex and relies on legal concepts as stated in the federal and state statutes that govern it. These concepts are sometimes hard for laymen to understand. The process, therefore, often requires that debtors who do not understand its complexity to consult with trained and experienced bankruptcy lawyers to accurately maneuver the system.

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• A Chapter 7 Requires a Debtors Statement of Intention (betterbankruptcy.com)
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Debtors Prison, The Clink Prison Museum, Bankside, London (Photo credit: nikoretro)

A debtor recently visited a bankruptcy forum website to ask these questions: “I know I need to file bankruptcy, but what about my future employment when I do? Will the law protect me?”

The debtor in question is a 26 year old female from Ohio who is currently attending college to become an accountant or financial adviser of some type. She is getting an accounting and financial degree.

The debtor bought a house she is currently underwater and wants to default on, has over $20,000 worth of student loans, has $14,000 worth of credit card debt, and has over $100,000 worth of medical bills. Her income is $1,000 monthly take home pay, she commutes 250 miles a day round trip, and she owns a car outright valued at $10,000. She also owns household items and personal belongings.

The debtor’s biggest concern is that she is afraid if she files for bankruptcy protection, she will have a hard time in getting employment opportunities in the future. If she doesn’t file, she is afraid she cannot continue to financially exist when the lawsuits start pouring in, so it is a catch 22 situation for the debtor. What are her alternatives?

Fortunately for most debtors, the law is pretty explicit towards discriminatory treatment. The law under title 11 U.S.C. 525 states: (b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

Unfortunately, in some cases, the law makes exceptions for people who are applying for some sensitive type jobs where having filed for bankruptcy protection may be a security issue. Too, in Myers v. TooJay’s Management Corporation, a judge found that the statute (11 U.S.C. 525) doesn’t prohibit refusal to hire based on bankruptcy. So this particular statute has been left up to court precedence, and there are plenty of cases that support views in both directions of the law.

There is nothing in the bankruptcy law that prevents a prospective employer from looking into the credit background of their future employees, and a bankruptcy is put on your credit report for up to 10 years. In effect then, this fact could hurt the debtor’s chances for getting employment by some companies.

On the other hand, many companies see filing bankruptcy as a mature way of dealing with a bad financial situation. They realize that filing bankruptcy can happen through no fault of your own, and filing can be something you had to do in order to responsibly move on with your life.

If you feel like you are in a catch 22 situation like the debtor in our illustration, ask an experienced bankruptcy lawyer to help you decide whether to file or not.

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• Taxes Due After a Discharged Bankruptcy (betterbankruptcy.com)
• Bankruptcy Rules Changed in December of 2011 (betterbankruptcy.com)
• Bankruptcy and the Adversarial Proceedings (betterbankruptcy.com)
• Discharge of Debt in Bankruptcy? (betterbankruptcy.com)