Will a Chapter 7 or Chapter 13 Bankruptcy Affect My Family?
"Will a Chapter 7 or Chapter 13 bankruptcy affect my family?"—A Common Myth
One of the most common questions that potential Chapter 7 or Chapter 13 bankruptcy clients has is with regard to the effect of an individual's bankruptcy upon his or her family-members. Of course, there is at least an indirect effect: the income and debt-load of a family-member always has a general effect on those around him- or herself. These potential clients mean something different than, though. They want to know what specific effect their bankruptcy will have on their spouse's credit report, their children's credit reports, employment prospects or business prospects of others in the household, ability to borrow student loans, and a host of other specific issues. Generally, your bankruptcy will have no effect upon your family-members:
- Your bankruptcy will not appear on anyone else's credit-report, even your spouse's or children's.
- Your bankruptcy will not hamper your family members' employment prospects (or even your own: the Federal Bankruptcy Code forbids under force of Federal law discrimination with regard to hiring based on the filing of a bankruptcy, though this may vary based upon an employer's characterization as a private or public employer if you are outside of Michigan and the 6th Circuit, where I practice).
- Neither you nor your family-members can be fired for having declared bankruptcy.
- Your bankruptcy will not limit your or your children's ability to borrow for student-loans: discrimination in this area of lending is forbidden by the Bankruptcy Code.
- Your family will not suffer a bad reputation as result. No one generally will know you have filed if you don't tell them.
"Will a Chapter 7 or Chapter 13 Bankruptcy Affect My Family?" When Family Members Are Creditors or Receive Transfers of Cash or Property from You
However, there can be an impact upon your family-members if your family-members are also your creditors, or if you have transferred or gifted assets to them prior to filing a Chapter 7 bankruptcy. If you have borrowed money from them before filing for bankruptcy, they must be listed as creditors in your petition along with your other, commercial creditors. A hurried repayment of a personal loan prior to filing, depending on its amount, must be disclosed also in the petition and may result in the bankruptcy Trustee, in a Chapter 7 bankruptcy case, pursuing that family-member with legal action to retrieve the funds. Likewise, if you have gifted property or larger amounts of cash to family members in the year or more prior to filing for bankruptcy, this can be problematic, also. It is ill-advised to transfer assets out of one's name prior to filing for bankruptcy. In short, an experienced bankruptcy attorney should be consulted for the proper advice regarding treatment of assets of creditors, particularly where a family member is involved. A bankruptcy can be the most effective tool possible for moving a person from a situation of hopeless debt and compounding interest and late-fees to a bright, clear future. Concern for family members is everyone's priority interest, but worry for your family members should not prevent you from pursuing the best course of action. In most cases, they are in no danger, and, where there is an issue within the bankruptcy process itself, a good attorney can guide you through it. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.