Being a Chapter 11 lawyer, we know that reaching the decision to file for bankruptcy is not an easy one to make. We also know that bankruptcy is a mechanism canonized into law to help people who find themselves in an unwinnable situation and one that your Chapter 11 attorney can successfully use to get your life, business, and finances back on an even keel. There are many important nuances to understand about bankruptcy, Chapter 11 in particular, that we will go over with you in the course of consulting. In the meanwhile, however, we find that there are many wrong ideas floating around, and we want to take the time to set a few things straight. Understanding that Chapter 11 is a financial tool, it is important to come into it with a clear understanding of some of the dos and don’ts, as well as what can and cannot happen when you file for bankruptcy.
All Debts Are Not Discharged in a Chapter 11
A common misconception is that bankruptcy dispels and discharges all your debts. Wouldn’t that be nice? Since Chapter 11 is actually a financial tool to help manage your finances, it is designed to give you temporary relief and reduce the burden, not wave a magic wand and make all your debts go away. Your Chapter 11 attorney will be the first to tell you that your obligations, particularly those relating to alimony, child support, and student loans, are not going to be removed or discharged. Taxes may be reduced or removed based on what the situation and circumstances are, but many times, the IRS is still able to collect, despite filing for a Chapter 11.
Your Credit Can Be Rebuilt After a Chapter 11
As a Chapter 11 lawyer, we are frequently faced with concerned clients who wonder if filing for bankruptcy will permanently damage their credit. The reality is that bankruptcy is going to hurt your credit, at least for a while. Once you come out of bankruptcy, it is often recommended that you get a secured credit card and slowly start to build up your credit again. There are ways and means to improve your credit after you have gone through a bankruptcy, so you should not hesitate to take this step if it will improve your overall quality of life and ability to meet financial challenges. Having a realistic expectation is a good thing, so you should remember that it will take time to rebuild your credit.
Irresponsibility Is Not Wise Before or After the Chapter 11
The largest misconception comes with regard to responsibility before and after the bankruptcy has been filed. If you go on a spending spree, for example, where you max out all your credit cards days before you file for bankruptcy, there is a very good chance that you will have to pay all of this back. Similarly, your Chapter 11 lawyer will tell you that you may have to live frugally for a few years after the bankruptcy while you make good on what the court orders. In any event, responsible spending and careful planning are what makes a bankruptcy a successful took of financial reorganization.