Much of what people believe about bankruptcy is simply not true. Let’s dispel some of these myths right now, shall we?
Myth 1: Everyone will know you have filed for bankruptcy.
Unless you’re a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors and the people who you tell. While it’s true that your bankruptcy is a matter of public record, the number of filings is so massive, that unless someone is specifically trying to track down information on you, there is almost no likelihood that anyone will even know you filed. However, telling someone that someone else filed bankruptcy is good gossip, just like telling someone that you heard so-and-so is getting a divorce. So if you don’t want everyone you know to know that you filed bankruptcy, you simply need to keep the information to yourself. As for newspapers, my experience is that most papers don’t include information about who filed bankruptcy and even if they did, think about it: who would be interested enough to read that stuff?
Myth 2: You will lose everything you have.
Nothing could be further from the truth. The fact is most people who file bankruptcy don’t lose anything. Every state has exemptions that protect certain kinds of property. Using California as an example there are exemptions to protect such things as your house, your car, your truck, household goods and furnishings, IRAs, retirement plans, the cash value in life insurance, wages, and personal injury claims. There is even a “wildcard” exemption of over $21,825 that can be applied wherever you want it. In those rare situations where you have more property than can be protected by available exemptions there is Chapter 13 (reorganization). In Chapter 13 you can even keep this property by paying a higher Chapter 13 plan payment. Second, filing bankruptcy does not generally wipe out liens. Therefore if you want to keep a car, truck, home or business equipment that serves as collateral for a loan you need to keep paying on the debt. If you make these payments and have exemptions to cover any value above what is owed you can rest assured you will be able to keep these items.
Myth 3: You will never be able to own anything again.
A surprising number of people believe this, but this is completely false. In the future… you can buy, own and possess whatever you can afford.
Myth 4: You will never get credit again.
Quite the contrary. Filing bankruptcy gets rid of debt and getting rid of debt puts you in a position to handle more credit and this makes you look more attractive to would-be lenders. In my experience, unfortunately it won’t be long before you’re getting credit card offers again. I say “unfortunately” because I don’t want you to get right back in debt again. At first the would-be lenders will want more money down and will want to charge you higher interest rates. However, over time, if you are careful, keep your job, start saving money, pay your bills, and do things that will put good marks on your credit report, the quality of your credit will get better and better. Generally, in my experience, if a client has not re-established good credit in 2 to 4 years sufficient to buy a car or even a house it’s not because they filed bankruptcy. It generally means that something else has happened after the bankruptcy to hurt their credit.
Myth 5: Filing bankruptcy will hurt your credit for 10 years.
Not true. You are getting two completely different concepts confused with each other. You are getting the fact that bankruptcy is reported on your credit report for 10 years mixed up with the effect that reporting will have on your credit. Just because something is reported on your credit report does NOT necessarily mean it will have a negative effect on your credit standing.
And let’s get one thing out in the open: By the time you need to make an appointment to see a bankruptcy attorney your credit is already messed up or maxed out, or both. This being the case you have no credit for bankruptcy to hurt. Furthermore, as I mentioned above, if you have not re-established good credit in 2 to 4 years after you file bankruptcy most likely has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy.
Myth 6: If you’re married both you and your spouse have to file for bankruptcy.
Not true. In many cases where both husband and wife have a lot of debt it makes sense and saves money for them to both file, but it is never a requirement under the law. We have many cases where only one spouse has filed. The good news is that generally if it makes sense for both spouses to file together they can both file for the price of one filing.
Myth 7: It’s really hard to file for bankruptcy.
No, it’s not, at least not in the hands of an experienced bankruptcy attorney. In the hands of an experienced bankruptcy attorney, filing bankruptcy is easy. The decision to file may be hard – especially before your initial consultation when you have less-than-adequate information, but once the decision is made the filing part is easy.
Myth 8: Only deadbeats file for bankruptcy.
Not true. Most of the people who file bankruptcy are good, honest, hard-working people, who only file as a last resort. We generally see people who have been struggling to pay the bills that are left over from some life-changing experience, such as a divorce, the loss of a job, a failed business venture, a serious illness, or some family emergency. Or because they honestly and mistakenly fell into debt at a young age before they knew better and before they knew anything about budgeting or how to manage money. And sometimes we help people who were simply overly optimistic about the future.
Myth 9: Filing bankruptcy means you’re a bad person.
Not true. There’s a reason over 1,000,000 Americans file bankruptcy each year and it’s not because they’re bad people. Lots of good, honest, hard-working people fall on hard times. Let’s face it life can be brutal and sometimes the money’s just not there. The bankruptcy laws were created to make sure you have a way to get free from the burden of debt so that you and your family can have a second chance at a “fresh start.”
Myth 10: Filing for bankruptcy will hurt your credit.
That’s not true. Think about it. By the time you come to a bankruptcy attorney your credit is already either messed up or maxed out. And if it’s already messed up or maxed out how can bankruptcy hurt it? The big surprise for my clients is when I tell them that filing bankruptcy can actually help them re-build their credit. Bankruptcy gets rid of debt and getting rid of debt puts you in a better position to handle new credit. Therefore bankruptcy is the first step in the process of re-building your credit.
Myth 11: Even if you file for bankruptcy, creditors will still harass you and your family.
This is NOT true. In fact, nothing could be further from the truth. The minute you file bankruptcy, the Bankruptcy Court issues an order telling all of your creditors to leave you alone. No more phone calls. No more collection letters. No more lawsuits. No repossessions. No foreclosures. Nothing. This order has a name. It is called the “automatic stay” and it is issued in accordance with title 11 United States Code, Section 362. The automatic stay protects you from any and all collections actions. After you file bankruptcy, the creditor is not even allowed to talk to you. In addition, the creditor must stop any collection attempts already started. The automatic stay is very powerful and puts the full weight of the United States Courts to work for you, to make sure your creditors leave you alone. If a creditor violates the automatic stay you have the right to bring the creditor before the Court for Contempt of Court and to be compensated accordingly. Bankruptcy Court Judges do not take kindly to creditors who ignore the automatic stay and these Judges have been known to punish creditors severely. Very simply, once you file for bankruptcy creditors must leave you alone or suffer the consequences.
Myth 12: If you file for bankruptcy, it may cause more family troubles and may even lead to divorce.
This is NOT true. Usually, it works just the opposite. Filing bankruptcy is not the problem. The problem is not being able to pay your bills. All good, honest, hard-working people feel a strong need to pay their bills and not being able to do so causes them to feel tremendous stress. Unless you do something to relieve this stress, the stress can quickly build to the breaking point. Often the marriage is stressed to the breaking point. Bankruptcy is designed to get you out from under the burden of debt, to protect your property and to lower your stress level. If your experience is like that of other couples, you will find that filing bankruptcy and lowering the stress level can be a crucial first step to bringing the love and caring back into your relationship. This, in turn, gives your marriage a fighting chance.
Myth 13: You can’t get rid of back taxes through bankruptcy.
We get rid of old “income” taxes for our clients all the time. By “old” I mean income taxes more than 3 years old. Under the law there are 3 or 4 qualifications that also have to be met. But once these are met the taxes are gone. Please note: Filing bankruptcy does NOT get rid of withholding or sales taxes no matter how old they are.
Myth 14: You can only file once for bankruptcy protection.
The truth is you can file more than one time. How long you have to wait between filings depends on what you filed before and what you need to file this time. It also might depend on what happened in the prior case. Hopefully, you will never need to file more than one bankruptcy. You should never assume that the protection you need under bankruptcy law is not there. Call us for sound legal advice even if you have filed before and are facing debt problems now. The initial consultation is always free.
Myth 15: You can pick and choose which debts and property to list in your bankruptcy.
I’m sorry but you can’t and doing so would be against the law. When you file bankruptcy you have to list all your property and all your debts. Most people want to leave out a debt because it is their intent to keep paying on it. The good news on this score is that you can achieve the same goal, even though you have to list the debt. If you want to keep paying on a debt after bankruptcy you can. After bankruptcy, you can pay anybody you want to pay. In fact, after you file bankruptcy there are some debts you have to keep paying. For instance, if you have a car, truck or house loan, even though you list the debt in your bankruptcy, if you want to keep the car, truck or house, you have to keep paying on the debt. More importantly, you need to know this: As long as you stay current on the loan and keep the property properly insured, you are protected under the law and you get to keep the property.