12 Myths about Bankruptcy
12 Myths about Bankruptcy
Before you get your new beginning, you should know the facts. Here are some of the most common misconceptions about bankruptcy.
1. Everyone will know I filed for bankruptcy.
While it is true that bankruptcy records, like almost all court records, are public records, the reality is that the only people who are going to know that you filed are those people you choose to tell. There are a lot of people are you who have filed and you don’t have a clue…neighbors, co-workers, even relatives. And even if you have one of those really nosey people in your life, the truth is that they don’t know where to begin looking for the information.
2. All of my debts are wiped out in a Chapter 7 bankruptcy.
Perhaps this would be true in a perfect world, but not in the world that we live in. A Chapter 7 bankruptcy will discharge most types of debt. However, there are some types of debt that the bankruptcy code specifically excludes from discharge. They include federally insured student loans, child support, alimony, debts incurred as a result of fraud, and the personal obligation to pay condominium fees or home owner’s association dues.
3. I will lose everything that I have.
This may be the single biggest fear that people have when considering filing for bankruptcy. They think that someone is going to show up at their door unannounced with armed guards and seize all of their possessions and throw them out into the street in their bath robe and slippers. This couldn’t be further from the truth. All states have exemptions for certain types of property that you are allowed to keep such as clothing, furniture, 401k funds, houses, vehicles, etc. In fact, most people will enter and exit bankruptcy keeping everything that they have. In fact, in some cases, it makes sense for people to voluntarily give up some of their property in the bankruptcy as opposed to retaining the property and keeping the corresponding debt after the case in complete.
4. I will never get credit again.
You will be surprised at how soon after bankruptcy you are receiving credit offers. Most people who file bankruptcy are overwhelmed with debt that they can’t afford to repay. However, when their debt is discharged and their case is over they have gotten a fresh start and they are in a position where they have disposable income and can afford to make payments if people extend them credit. Having said that, don’t expect to buy a house or even a car right away. It will take some time to build your credit to the levels required for major purchases like those.
5. If I am married, my spouse will have to file with me.
There is no requirement that both spouses file bankruptcy. In many cases spouses will file together, but that is determined by the nature of their income, assets and joint debts. We routinely file for only one spouse and not the other. The major factor a spouse will play on the bankruptcy is that weather or not the spouse is filing, their income must be included in the means test to determine if there is a presumption that the case should be a Chapter 13 reorganization rather than a Chapter 7 liquidation.
6. It’s really hard to file for bankruptcy.
The answer to this myth depends on how complicated your financial life is. However, for most people, there is very little difficulty in going through the bankruptcy process.
7. Only deadbeats file for bankruptcy.
Sometimes bad things happen to good people. There are countless life-changing events that could happen to any of us that could force us to file for bankruptcy; loss of a job, serious illness or divorce is just a few that we encounter. No one plans to file bankruptcy and no one is proud of it. It’s quite the contrary, most people struggle to pay bills and do anything they can to avoid bankruptcy. And there are a lot of people who wait too long to file and may have their wages garnished, a vehicle repossessed, or their home foreclosed on. In those instances, had they filed sooner they may have been able to avoid those negative consequences.
8. I want to repay some of my creditors and not include them in my bankruptcy.
You don’t get to choose which creditors to name in your bankruptcy. It’s an all or nothing system. Once you file bankruptcy, you are no longer obligated to pay the creditors that are going to be discharged. However, if you can’t sleep at night knowing that you had a debt that you owed to a creditor get wiped out, there is nothing stopping you from paying any or all of your creditors the amounts that you owe them after your bankruptcy.
9. Filing for bankruptcy will improve my credit rating.
While it does make sense that you will be in a better debt position after your bankruptcy is over, that does not directly correlate to an immediate increase in your credit score. We are one of the few law firms around that actually uses a credit modeling program that gives you the estimated credit score you will have 12 months after your bankruptcy is over. And in all cases, the projected credit score is higher than the credit score at the time of filing bankruptcy.
10. I can’t include my back taxes in my bankruptcy.
Certain income taxes can be included in your bankruptcy. The basic requirements are that you have to file your tax returns and the taxes owed must be at least three years old.
11. I can only file bankruptcy once.
Under the new bankruptcy laws, you can file a Chapter 7 every eight years (it used to be every seven years). Chapter 13 reorganizations can be filed more frequently depending on the circumstances.
12. I can max out my credit cards and then file bankruptcy.
Under no circumstances should you do this. This is viewed as fraud and will upset the trustee and the judge in ways that you didn’t know existed.
This FREE LEGAL REPORT was provided as a courtesy of:
Attorney Brian M. Douglas
Specializing in Bankruptcy Law
900 Circle 75 Parkway
Disclaimer: The information contained in this Report is intended to provide general information only and should not interpreted as legal advice or the formation of a lawyer/client relationship. Please not that every case is different and contains its own unique set of facts. Please consult with a lawyer for legal advice regarding the specific facts of your case. If you are currently represented by a lawyer this Report is not intended to interfere with that lawyer/client relationship.
Copyright © 2010 by Brian M. Douglas, Esquire. All Rights Reserved.