People often develop misconceptions about bankruptcy because they fail to consult with a qualified attorney. Below, we attempt to clarify or dispel 10 of the most common myths or misconceptions.
1. All debts are wiped out in Chapter 7 bankruptcy.
Certain types of debts cannot be discharged. Some of these include child support and alimony, student loans, certain taxes and debts incurred due to fraud.
2. I risk losing all of my belongings.
This misconception keeps people who should seek bankruptcy protection from doing so. While certain bankruptcy laws do vary from state to state, every state has exemptions that your attorney can use to protect certain assets, such as your house, your car, money in qualified retirement plans, household goods and clothing.
3. I'll never get credit again.
Not true. My clients have told me that they often receive multiple offers from credit card companies before their case is even over. The credit card companies watch the bankruptcy filings closely and spend millions of dollars soliciting consumers who are exiting bankruptcy. Be careful with these offers, however. They often come with very high interest rates. The consensus among many experts is to accept the offer with the lowest interest rate, but never to use the card to the extent that you will not be able to pay the balance in full the following month. If you can do this, you will be well on your way to rebuilding your credit. Finally, if you have a credit card with a zero balance on the day you file for bankruptcy, you don't have to list it as a creditor. As a result, you might be able to keep that card, even after the bankruptcy.
4. If you're married, both spouses have to file for bankruptcy.
Not necessarily. A joint filing, while often a good idea for most couples because of shared debt, is not mandated by the Bankruptcy laws. Speak to your attorney to see if a single filing is best for you and your spouse.
5. Since the law changed, I can't file for bankruptcy, or it's much more difficult.
Not so. The changes to the Bankruptcy laws did not strip you of your right to protection. While the process is more involved than it used to be, government statistics show that well over 90% of consumers are unaffected by the new laws. However, it is recommended that you hire a lawyer to make sure that your bankruptcy is done right.
6. Only "deadbeats" file for bankruptcy.
Most people who file for bankruptcy have had life-changing experiences, such as a loss of job or reduction in income, a serious illness, or a divorce.
7. 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.
Your desire to repay your debt is commendable. However, the Bankruptcy laws require that you list all debts that exist on the date you file your case. After a bankruptcy, you are no longer obligated to repay discharged debts, but you are permitted to do so voluntarily.
8. You can't get rid of back taxes through bankruptcy.
Generally speaking, this is true. However, there are exceptions. To have a chance of success, you must file all of your returns. See your attorney for more on discharging old taxes.
9. I can max out all my credit cards, file for bankruptcy, and never pay for the things I bought.
STOP! This is not a good idea, despite what you may have heard. This is called fraud because, under certain circumstances, the Bankruptcy law presumes that you incurred the debt with no intention to repay it. When your creditors receive notice of your bankruptcy case, they will review your accounts for spending patterns and recent use. Sometimes, they file what's called an Adversary Complaint in the Bankruptcy Court, challenging the discharge of your debt with them. This can and will result in the loss of your discharge and additional attorney fees for your defense.
10. Everyone will know I've filed for bankruptcy.
Not likely. Unless you're a famous person or public figure, and the filing is picked up by the media, probably the only people who will know about a filing are your creditors. While a bankruptcy is a public legal proceeding, most publications no longer print bankruptcy notices.
