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What Happens when I file a Chapter 7 Bankruptcy in Maryland?

A lot of people have ideas about what happens when you file bankruptcy. Some of them are right, but a lot of them are myths put in your head by the guy with the scary voice in the radio ads.

The point of this post is to point out some basics about bankruptcy, while at the same time, dispel some myths. Ultimately, all your questions can be answered by calling and setting up a free initial consultation with our office's experienced Maryland bankruptcy attorneys.

BELIEF 1

If I file bankruptcy, I lose my car.

ANSWER: NO! There is no prerequisite or obligation to surrender your vehicle just because you filed a Chapter 7 bankruptcy. More often than not, a debtor in bankruptcy can keep the vehicle he/she is driving when he/she files a Chapter 7 bankruptcy.

In most cases, filing a bankruptcy might require something called a "reaffirmation of debt" in order to continue to drive your vehicle. You will need to keep making the payments on time, but you are not going to be required to surrender your car just because you filed bankruptcy.

There might be circumstances where your car might be considered an asset in your bankruptcy, but in order to determine that it is best to make an appointment to come in and discuss your situation.

BELIEF 2

A Chapter 7 bankruptcy filing will cause me to lose my house.

ANSWER: No, you don't have to lose your house. In fact, in many instances you can keep your house. There are circumstances that could affect any equity in your home, but that is only if you have equity in your home in the first place.

BELIEF 3

I will lose all of my personal property.

ANSWER: In most cases, NO! There are circumstances where some of your assets could be used to satisfy your debts, but even if some asset surrender is required, generally, the amount of debt being forgiven far outweighs the asset being given up.

BELIEF 4

I will never be able to get a home or car loan ever again.

ANSWER: Bankruptcy does not destroy your credit.

It restores your credit back to square one.

Most lenders will gladly lend to someone once they have reestablished credit, regardless of a previous bankruptcy filing.

Bankruptcy is the opportunity to reestablish your credit score, not destroy it.

BELIEF 5

My credit is gone forever.

ANSWER: Credit comes at you faster than your head can spin after you have been discharged from bankruptcy. You will receive every opportunity to reestablish your credit following a discharge in bankruptcy.

Ultimately, it's up to you to responsibly handle credit following your discharge. Bankruptcy discharge is a great tool to restart your credit history, but you can only receive a Chapter 7 discharge once every eight years. So, any debt incurred following the discharge of your bankruptcy is your responsibility for the foreseeable future.

BELIEF 6

Everyone will find out that I filed bankruptcy.

ANSWER: Unless you are famous or your bankruptcy is of some newsworthiness, in all likelihood, no one will ever know unless you tell them.

A Chapter 7 bankruptcy requires notice of the bankruptcy to go to anyone whom you owe money. Also, you are required to notify co-debtors on any debt of your bankruptcy. Otherwise, your bankruptcy filing is relatively anonymous.

BELIEF 7

I will lose my security clearance if I file bankruptcy.

ANSWER: This is a common belief in this area considering the heavy reliance on government employers.

Under the Adjudicative Guidelines for Determining Eligibility for Access to Classified Information, Title 32, Section 147.A, the financial considerations for a security clearance are:

(a) The concern. An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds. Unexplained affluence is often linked to proceeds from financially profitable criminal acts.

(b) Conditions that could raise a security concern and may be disqualifying include: (1) A history of not meeting financial obligations;

(2) Deceptive or illegal financial practices such as embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust;

(3) Inability or unwillingness to satisfy debts;

(4) Unexplained affluence;

(5) Financial problems that are linked to gambling, drug abuse, alcoholism, or other issues of security concern.

These factors can be mitigated by the following:

(1) The behavior was not recent;

(2) It was an isolated incident;

(3) The conditions that resulted in the behavior were largely beyond the person's control (e.g., loss of employment, a business downtrun, unexpected medical emergency, or a death, divorce or separation);

(4) The person has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control;

(5) The affluence resulted from a legal source;

(6) The individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.

Essentially, the takeaway from this is that a bankruptcy filing in and of itself is not an automatic disqualifier from being cleared or continuing to be cleared for a security clearance. What is of more import is the type of debt that has been incurred, as well as, how you arrived to the financial position requiring bankruptcy.

(Source : http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=0ea4a6170f6a37ad11bd664266f98d5f&rgn=div8&view=text&node=32:1.1.1.4.65.1.58.8&idno=32)

BELIEF 8

I was sued and the creditor already is garnishing my paycheck so there is nothing more I can do.

ANSWER: This is not true! A chapter 7 bankruptcy can remove the garnishment from your bank account or paycheck and potentially have garnished money returned to you.

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