All my debts will be discharged in bankruptcy.
False. There are some debts that cannot be discharged in bankruptcy. These debts are considered unsecured priorty debts. They are:
- student loans,
- taxes, custom duties, and penalties owed to a federal, state or local government agency,
- domestic support obligations such as child support and spousal support owed to a spouse, former spouse, debtor’s child, or the legal guardian of debtor’s child, or governmental unit to whom the support has been assigned,
- extensions of credit in an involuntary case,
- wages, salaries and commissions, including vacation, severance and sick leave pay owed to employees and commissions owed to qualifying independent sales representatives,
- contributions to employee benefit plans,
- claims of certain farmers and fishermen,
- deposits for the purchase, lease and rental of property or services for personal, family, or household use, and,
- claims for death or personal injury resulting from the operation of a motor vehicle or vessel while the debtor was intoxicated from the use of alcohol, a drug or another substance.
Misconception # 2 – I can keep my car and house and I don’t have to repay the car loan or mortgage after my debts are discharged through bankruptcy.
False. A house with a mortgage on it or a car with an outstanding loan are considered secured property or debt. The mortgage company or bank has a secured interest in the house meaning that if a person does not pay the applicable mortgage payments, the mortgage company can foreclose and obtain possession of the house. The same thing occurs for a car with an outstanding note. If a person does not make the monthly payments on the car note, the holder of the note (bank, credit union) can repossess the car. In Michigan, the bank, mortgage company, and credit union after they obtain possession of the property have six years whereby they can sue the debtor for the outstanding debt even though the company obtained the property. Bankruptcy discharges the debtor’s liability behind the mortgage or note; however, in order for the debtor to remain in possession of the house or car, the debtor must make the monthly payments as scheduled.
Misconception #1 – I can file for Bankrupcty as many times as I want.
False. There are restrictions on the number of times a person can file for bankruptcy protection under the Bankruptcy Code (11 U.S.C. Sec. 101 – 1532). If a person filed for Chapter 7 protection, that person cannot file for Chapter 7 protection again within 8 years of the initial filing date. If a person filed for Chapter 13 protection, that person cannot file for Chapter 13 protection again within 3 years of the initial filing date and he/she cannot file for Chapter 7 protection within 4 years of the filing date.