Top Five Things People Worry About in Bankruptcy – And Shouldn’t

I wrote a legal guide on Avvo yesterday about ten things to consider when thinking of talking to a bankruptcy attorney.

Tonight, I follow up with the top five things that people panic about when thinking of bankruptcy and shouldn’t:

1) IRAs and Pensions: In a world where retirement seems further away than ever and the amount needed to maintain a reasonable lifestyle increases daily, people are rightfully worried about how their retirement accounts are affected by bankruptcy. The answer is, for most people, not in the slightest. ERISA covered plans are not even part of the bankruptcy estate and there is a very high exemption for IRAs. Now, if there is an annuity or high cash value whole life policy, there may be issues, but that’s why you talk to a professional; to avoid them.

2) Getting Credit after bankruptcy: you will get credit card offers shortly after the case is done. Trust me, you will. Whether you should accept them is another thing entirely. Credit is good for some things, but only if it is a tool not a crutch.

3) Public or family opinion: This is a tough one. Many people still feel a sense of shame when dealing with bankruptcy. They wonder if EVERYONE will know. The answer is NO. Bankruptcy may be a public filing, but the information is behind a pay wall that only attorneys and credit issuers generally use. In my jurisdictions, it is not published in the paper, online or elsewhere. If you don’t tell people, they will not know.

4) Pets: The bankruptcy petition, on Schedule B, has a spot for animals. I make people list their pets. It scares them. It shouldn’t. In my jurisdictions, animals will generally refer to household pets – dogs, cats, goldfish, hamsters, etc. In rural jurisdictions, this is likely different where livestock is involved and there is significant value. In New Jersey and the NYC metro area, not so much. Unless your dog just won Crufts or Westminster, he or she likely costs more on an annual basis than any cash value. Same thing goes for cats or other pets. The Trustee does not want your twelve year old bichon frise, I assure you of this. If you have a breeding cattery or kennel full of champion bengals or dachshunds, we can talk about animals used in some level of business, but your household pets are safe.

5) Credit card loyalty: I hear this very often – “But I have had this card forever, won’t they just work with me?” or “Why won’t they just let me pay half?” The reason – the creditors have their own economic interests and corporate policies, which rarely intersect with logic the way most normal people think. When I tell prospective clients that ALL their creditors have to be listed there is often a complaint that they have had this card forever and want to keep it. The answer is that you will get new cards eventually, if you want them, but do you really need it. Bankruptcy is about a fresh start – take advantage of it.