Bankruptcy Myths
There is a great deal of misinformation regarding bankruptcy out there. And although there's much information that's very helpful, some of these myths continue to persist. Here are some of them.
Myth: All debts are wiped out in Chapter 7 bankruptcy.
Fact: Certain types of debts cannot be discharged, or erased. They include child support and alimony, overpayments for government benefits, student loans, and debts incurred as the result of fraud. Additionally, secured debts on items the debtor intends to keep are not dischargeable - if you want to keep the house or the vehicle, you have to keep paying on the loan.
Myth: I will lose everything.
Fact: This is a misconception that keeps people who should file for bankruptcy from doing it. While the bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car (up to a certain value), and money in qualified retirement plans, household goods and clothing.
Myth: I'll never get credit again.
Fact: Before long you will be getting credit card offers again. They'll just be from lenders that will charge very high interest rates. We don't advise our clients to run up a lot of bills, but if you need to get an automobile you will be able to get credit. Bankruptcy stays on your credit about 7 to 10 years. Most people who file see there credit return to pre-filing levels or improve witin 24 to 36 months.
Myth: If you're married, both spouses have to file for bankruptcy.
Fact: It often happens that one spouse has a significant amount of debt in his or her name only. However, if spouses have debts they want to discharge that they are both liable for, they should file for bankruptcy together. Otherwise, the creditor will simply demand payment for the entire amount from the spouse who did not file.
Myth: Only "deadbeats" file for bankruptcy.
Fact: Most people file for bankruptcy after a life-changing experience, such as a loss of job, a serious illness, or a divorce. They've struggled to pay their bills for months and just keep falling further behind. Filing bankruyptcy is NOT indication of poor character, simply a process people go through when they have no other viable options available.
Myth: I should not include certain creditors in my filing because it's important to me to pay them back someday and if the debt is discharged, I can't ever repay them.
Fact: It's a commendable sentiment. After a bankruptcy, you are no longer obligated to repay them, but you would always have that opportunity. If your conscience bothers you because you didn't pay your debts, there's nothing in the bankruptcy code that prevents you from doing that once you get back on your feet. However, bankruptcy is an all-or-nothing deal, so you must include all your creditors in the petition.
Myth: You can only file for bankruptcy once.
Fact: The truth is, you can only file for Chapter 7 bankruptcy once every eight years. For Chapter 13 reorganization, you can file more often than that, but you cannot have more than one case going at one time. Still, it's not very good to make filing bankruptcy a habit.
Myth: I can max out all my credit cards, file for bankruptcy, and never pay for the things I bought.
Fact: This is not a good idea. It's called fraud and bankruptcy judges tend to frown upon it. The trustee in your case will review all your purchases right before your filing. And the trustee knows what to look for to find fraud.
Myth: Everyone will know I've filed for bankruptcy.
Fact: Unless you're famous or a prominent person, and the filing is picked up by the media, usually the only people who will know about a filing are your creditors. While it's true that bankruptcy is a public legal proceeding, there are so many people who file, publications do not have the space, or inclination to publish all of them.
Myth: Creditors can still harass you if you file for bankruptcy.
Fact: When the bankruptcy is filed, automatic protection is put onto you and all of your property instantly. Creditors are not allowed to contact you for any reason, which includes calling or even billing you. If they persist in harassing you, you do have remedies available through the Federal Bankruptcy laws.
Myth: Filing bankruptcy causes more family trouble and divorce.
Fact: Bankruptcy eliminates debt eliminating financial stress. Filing bankruptcy is the solution to the problem, not an additional problem. Although making the decision to file bankruptcy might be difficult one, the relief provided will lift a huge weight off of you. The absence of financial stress will give your relationship a fighting chance.
Myth: All debts are wiped out in Chapter 7 bankruptcy.
Fact: Certain types of debts cannot be discharged, or erased. They include child support and alimony, overpayments for government benefits, student loans, and debts incurred as the result of fraud. Additionally, secured debts on items the debtor intends to keep are not dischargeable - if you want to keep the house or the vehicle, you have to keep paying on the loan.
Myth: I will lose everything.
Fact: This is a misconception that keeps people who should file for bankruptcy from doing it. While the bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car (up to a certain value), and money in qualified retirement plans, household goods and clothing.
Myth: I'll never get credit again.
Fact: Before long you will be getting credit card offers again. They'll just be from lenders that will charge very high interest rates. We don't advise our clients to run up a lot of bills, but if you need to get an automobile you will be able to get credit. Bankruptcy stays on your credit about 7 to 10 years. Most people who file see there credit return to pre-filing levels or improve witin 24 to 36 months.
Myth: If you're married, both spouses have to file for bankruptcy.
Fact: It often happens that one spouse has a significant amount of debt in his or her name only. However, if spouses have debts they want to discharge that they are both liable for, they should file for bankruptcy together. Otherwise, the creditor will simply demand payment for the entire amount from the spouse who did not file.
Myth: Only "deadbeats" file for bankruptcy.
Fact: Most people file for bankruptcy after a life-changing experience, such as a loss of job, a serious illness, or a divorce. They've struggled to pay their bills for months and just keep falling further behind. Filing bankruyptcy is NOT indication of poor character, simply a process people go through when they have no other viable options available.
Myth: I should not include certain creditors in my filing because it's important to me to pay them back someday and if the debt is discharged, I can't ever repay them.
Fact: It's a commendable sentiment. After a bankruptcy, you are no longer obligated to repay them, but you would always have that opportunity. If your conscience bothers you because you didn't pay your debts, there's nothing in the bankruptcy code that prevents you from doing that once you get back on your feet. However, bankruptcy is an all-or-nothing deal, so you must include all your creditors in the petition.
Myth: You can only file for bankruptcy once.
Fact: The truth is, you can only file for Chapter 7 bankruptcy once every eight years. For Chapter 13 reorganization, you can file more often than that, but you cannot have more than one case going at one time. Still, it's not very good to make filing bankruptcy a habit.
Myth: I can max out all my credit cards, file for bankruptcy, and never pay for the things I bought.
Fact: This is not a good idea. It's called fraud and bankruptcy judges tend to frown upon it. The trustee in your case will review all your purchases right before your filing. And the trustee knows what to look for to find fraud.
Myth: Everyone will know I've filed for bankruptcy.
Fact: Unless you're famous or a prominent person, and the filing is picked up by the media, usually the only people who will know about a filing are your creditors. While it's true that bankruptcy is a public legal proceeding, there are so many people who file, publications do not have the space, or inclination to publish all of them.
Myth: Creditors can still harass you if you file for bankruptcy.
Fact: When the bankruptcy is filed, automatic protection is put onto you and all of your property instantly. Creditors are not allowed to contact you for any reason, which includes calling or even billing you. If they persist in harassing you, you do have remedies available through the Federal Bankruptcy laws.
Myth: Filing bankruptcy causes more family trouble and divorce.
Fact: Bankruptcy eliminates debt eliminating financial stress. Filing bankruptcy is the solution to the problem, not an additional problem. Although making the decision to file bankruptcy might be difficult one, the relief provided will lift a huge weight off of you. The absence of financial stress will give your relationship a fighting chance.