Effects of Filing for Bankruptcy

For many people, the thought of filing for bankruptcy brings up many questions that have to do with eliminating debt and concerns about the potential loss of property.  However, for some people, the questions they have go much deeper than debts and assets, and hit at the core of what it means to be a member of our society today.  They wonder what kind of effect the bankruptcy will have on maintaining self-respect, earning a living, raising a family, and keeping freedoms.

Until very recently, filing for bankruptcy was a dignified way to achieve a fresh start in a world filled with economic uncertainty.  The law presumed that individuals filing for bankruptcy were honest citizens seeking a fresh start with regard to their debts.  However, due to changes in the bankruptcy code in 2005, the new bankruptcy code leans more toward assuming each debtor is potentially cheating the system.  While this change in attitude will not prevent you from receiving a discharge in most cases (assuming you are being honest), it can sometimes make you feel bad about yourself.  Although it is sometimes easier said than done, you should not feel bad about yourself for needing to file for bankruptcy.  Bankruptcy is a worthy part of our legal system that is based on forgiveness rather than retribution.  Apart from giving you a fresh start financially, it can help keep families together, improve depression rates, and lower stress levels.  Case in point, don’t let filing for bankruptcy get you down.

Many individuals wonder if their employers will find out about their bankruptcy filing and if it will effect their ability to maintain employment with that particular company.  It is very unlikely your current employer will receive notice of your bankruptcy filing if you file a Chapter 7 bankruptcy case.  If you file a Chapter 13 bankruptcy case, your payroll department may find out about your filing because it may be a requirement from the court to have your Chapter 13 payments deducted from your pay checks.  While you may not like the idea of your employer finding out about your filing, and having your plan payments deducted directly from your paychecks, the bankruptcy court could deny confirming your plan if you do not comply with this.  The automatic deduction from your checks, or wage order, will also make paying your plan payments easier for you by ensuring your payments are made on time.   The first thing to recognize is that no employer, government or private, may fire you because you filed for bankruptcy.  Additionally, they cannot discriminate against you in other ways by reducing your salary, demoting you, or reducing responsibilities due to your bankruptcy filing.  If a debtor is fired shortly after their employer receives notice of their filing, the debtor may have a case for illegal discrimination or wrongful termination.

Some individuals also worry that they will be discriminated against by Government agencies and private entities after filing for bankruptcy.  Federal, State, and local governmental units cannot legally discriminate against you due to a bankruptcy filing.  They may not deny or terminate public benefits, evict you from public housing, or deny you access to a number of other government run programs/opportunities.  Additionally, there have been no reported cases from any state of a parent losing custody or custody privileges because he or she filed for bankruptcy.  Prohibitions against private discrimination, however, are not nearly as broad.  While private entities, such as employers, may not fire you due to your bankruptcy filing, other forms of discrimination, such as denying you rental housing, like an apartment lease, are legal.  The best way to confront these types of discrimination are to work on building your credit post filing.  There are a number of ways to do build your credit post-filing, including obtaining a secured credit card, reaffirming car loans and mortgages, or obtaining new secured debts and making payments on time and in the full amount.

Personal Freedoms are also another area that debtors fear will be effected by filing for bankruptcy.  The only true way that your personal freedoms can be effected by filing for bankruptcy is if you lie about or withhold information on your bankruptcy petition.  When you file for bankruptcy, you swear under penalty of perjury that everything in your bankruptcy petition is true to the best of your knowledge.  If you deliberately commit a dishonest act, such as failing to disclose income or property, you can be criminally prosecuted for fraud.  There are cases where it was proven debtors lied under penalty of perjury, and were sentenced to prison time in Federal penitentiaries.  If you lie, hide, or try to cheat the bankruptcy code, it can come back to haunt you in ways much worse than your current debt crisis ever could.   With this being said, as long as you are completely honest while preparing your bankruptcy petition, you should not face any effects on your personal freedoms.  After you file for bankruptcy, you are free to move to new homes, change jobs, and seek divorce if interested. If you decide on any of these things, it is important to seek legal advice from your attorney before doing so to ensure they are in your best interest.

Filing for bankruptcy does not mean that your life as you know it will be over.  In almost all cases, filing for bankruptcy provides a fresh start to help you re-build and move on to a debt-free life.   If you are interested in more information about how filing for bankruptcy would effect you, contact your St. Louis Bankruptcy attorney today!

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