Bankruptcy Basics
First, let’s recap what exactly bankruptcy is and what it does. Consumers generally file either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. Both types of bankruptcy include the automatic stay, which prevents your creditors from contacting you or trying to collect in any way during the bankruptcy process. The two types of bankruptcy differ in how they treat your assets and your debts.
In Chapter 7 bankruptcy, you’ll work with your attorney to divide up your property into exempt and non-exempt property. The exempt property is determined by California state law. California offers two different sets of exemptions that protect different amounts of different types of property such as your home, your car, and your household goods. In most cases, the law will exempt all of a debtor’s property. If there is any property that isn’t protected by an exemption, it will be sold by the bankruptcy trustee and the proceeds will be used to pay your creditors. Remember, though, that most debtors have no non-exempt property and don’t have to give anything up. After any non-exempt property is sold, the remainder of your unsecured debt is “discharged.” That means it’s forgiven and you don’t have to worry about it anymore.
In Chapter 13 bankruptcy, you’ll work with your attorney to come up with a payment plan. That plan will take your monthly income into account to make sure that you have enough cash every month to pay for your living expenses. It will last for 3-5 years, after which your remaining unsecured debt will be discharged. Chapter 13 is tougher than Chapter 7, but you may be required by law to file under Chapter 13 if your income is above a certain level.
Now, let’s take a look at who can find out about your bankruptcy.
Bankruptcy cases are filed in Bankruptcy Court
Once you’ve consulted with your lawyer about the best type of bankruptcy for your situation and completed your credit counseling requirement, you’ll file your case at the United States Bankruptcy Court. Because it’s filed in a court of law it’s a matter of public record. However, keep in mind there are millions of bankruptcy cases pending every year. Someone would have to sift through a lot of cases if they wanted to find yours, but it is possible.
Your Creditors
Your creditors will know about your bankruptcy. They’ll be part of the bankruptcy case and you have to list them on your bankruptcy filing and notify them that you’ve filed. If you don’t, those debts may not be discharged through the bankruptcy process. In addition to your creditors, the local bankruptcy trustee will know that you’ve filed.
Your creditors and the members of the court are all legally barred from sharing your confidential information, so they won’t be able to tell anyone else about your bankruptcy.
Family And Friends
So, your creditors and the court will know that you’re filing. Your family and friends, however, won’t. The court and your creditors can’t share your information with anyone, even if they’re family, without your consent. That means your family and friends won’t know unless you tell them or unless they decide to slog through the public records to find out if you’ve ever filed a case. The only way a family member or friend would find out about your bankruptcy is if you’ve cosigned a loan with them; they’ll typically receive a notification that you’ve filed for bankruptcy because it may affect their liability for the rest of the loan.
Employers
Many potential bankruptcy filers are concerned that a filing will affect their employment prospects. Like your friends and family, your employer typically won’t be notified of the bankruptcy and could only possibly find out via a search of the public records, or if you tell them. The same applies to new employers, if you’re on the hunt for a job. A bankruptcy does show up on your credit report, so potential employers may learn about it if they do a credit check as part of the hiring process. However, it’s illegal for employers to discriminate against you on the basis of a bankruptcy filing. In other words, they can’t refuse to hire you or promote you just because you filed a bankruptcy.
Note that for some Chapter 13 filers, plan payments are deducted from your paycheck. If that’s the case, your HR department may receive notice about the bankruptcy. This is similar to the way your employer will be notified if your wages are being garnished in order to repay a debt.
Considering A Bankruptcy?
The decision to file a bankruptcy is never easy. When you’re struggling with debt, however, it can be the best way to lift the burden. Bankruptcy doesn’t exist to shame or punish debtors. Rather, it’s a way to help shake off the weight of overwhelming debt and start over. If you have more debt than you can handle and are wondering about your options, contact us online, call, or visit one of our offices for a free consultation today. We’ll help you evaluate your finances and decide which debt management technique is best for your unique situation.
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