Consequences of Bankruptcy in Massachusetts
High unemployment during the recent Great Recession led to record bankruptcies in Massachusetts. In 2009, bankruptcies in the Commonwealth shot up 32%, and in 2007 the state saw a flood of bankruptcy proceedings with 13,387 filings. Bankruptcy is handled by Federal law and courts, but many states including Massachusetts have passed laws that alter exemptions or limitations for their resident citizens, which in turn changes the financial consequences of bankruptcy. An experienced bankruptcy attorney will be up-to-date with all applicable laws and can help you negotiate the bankruptcy process or its alternatives.
When you declare bankruptcy, you are required to surrender control over your personal assets and property (Chapter 13 provides some protection in this regard; the comments below relate directly to Chapter 7 bankruptcy). You will be restricted from selling property or making financial transactions without approval of the court. The court appoints a trustee to whom you surrender control of the property, and who determines what assets can be liquidated to repay unsecured debts.
One substantial consequence of bankruptcy is the loss of home equity. Federal bankruptcy law proptects a homeowner up to equity of $21,625 in his or her primary residence, or $43,250 if filing jointly. These values are revised every three years along with the income requirements for filing either Chapter 7 or Chapter 13. In Massachusetts, however, a bankruptcy filing protects a homeowner's equity up to $500,000 with a recorded Declaration of Homestead on record (also known as "The Estate of Homestead"). Thus it is in your benefit to have your primary home or residence protected under the Homestead Act, for which there are certain requirements: the property must be your primary residence; the homeowner cannot have been convicted of a felony. If you have been so convicted, you will lose any equity above $125,000. If you are married and either disabled or over the age of 62, and both spouses are on the deed, you will lose equity in the property in excess of $1 million dollars. And all Federal, state and local taxes due or other mortgages or secured debts incurred must be satisfied from within the protected equity, which will usually leave you with much less than the protected amount.
When the court declares you bankrupt, your prior creditors are prevented from calling you or taking any other action to collect the debt. This automatic stay occurs upon completion of the bankruptcy process, and it also prevents collectors from taking any action against your property, including filing lawsuits or garnishing wages. Any creditor who persists in contacting a debtor after being notified of the bankruptcy may be subject to sanctions and fees.
While bankruptcy brings debt relief and allows you a fresh start financially, it is damaging to your credit report, with the bankruptcy filing remaining on the credit report for 10 years. During this time, you may have difficulty obtaining loans or credit, and it may lead to higher premiums for insurance and higher interest rates. A bankruptcy filing may also affect your ability to obtain a job, particularly where that job involves money or significant responsibility. Further, a bankruptcy filing may cause difficulty in leasing an apartment or house. You will be forbidden from filing another Chapter 7 bankruptcy for eight years from the date of prior filing. If your bankruptcy petition is dismissed with prejudice, you will not be able to file for bankruptcy again within 180 days or if a Chapter 7 case was denied within the previous six years.