Bankruptcy Myths
In 2010 over 1.5 million people across America filed for Bankruptcy, a 9% increase over the filings in 2009. That is 1 out of 150 people Nationwide. Those types of numbers should dispel any types of scare tactics and myths that the credit industry has out there. But just in case, here are a few common myths about Bankruptcy.
Myth 1: Filing bankruptcy is difficult.
There are many rules in bankruptcy, the forms may seem daunting and the process may be confusing but these should not stop you from reaping the benefits of a fresh start. Our office knows the laws and can let you know what type of relief you will be eligible for.
Myth 2: My Credit Will be Ruined
If you are considering filing a bankruptcy, chances are that your credit has already taken a hit. It is possible, however, to begin rebuild your credit within months of filing bankruptcy. Initially, banks and credit card issuers may request additional money for down payments and your interest rates will be higher, but if you make your payments by the due date, your credit score will begin to improve.
Myth 3: All I own will be sold in a bankruptcy.
Texas has very strong exemption laws. An exemption is what you are entitled to keep despite filing for Bankruptcy. The exemption laws are going to allow you to keep your home, vehicles, retirement plans, household goods, furnishings, jewelry, and other personal items. Additionally, most people get to use a wild card exemption to exempt things such as motorcycles, boats, tax refunds, and cash.
In Chapter 13, even if the value of your property is more than the exemptions protect, you can usually keep what you own by paying the trustee on the value of the non-exempt portion of the property.
Myth 4: My Friends and Family Will Find Out About My Bankruptcy.
Yes, it is true that a bankruptcy filing is a court record and public records (such as court filings) can be accessed by anyone. However, it's unlikely that anyone other than your creditors and those that you personally tell will know. Unless someone has a specific reason to look up this information, it is not likely that anyone will find out.
Myth 5: I'm unemployed and my debts are uncollectible anyway.
In Texas, creditors have four years in which to sue you and they can collect against you for another 10 years if they obtain a judgment. Additionally, they can re-issue a writ to extend the collection period at the expiration of every 10 year period.
Myth 6: If I file, my employer will find out and I'll lose my job - or worse yet, I will not be able to get another job.
In the majority of cases, unless you choose to tell your employer that you filed bankruptcy, they will not find out. Even if they do find out, employers are not allowed to fire someone for filing bankruptcy.
Myth 7: You can only file bankruptcy once.
IF you've already filed bankruptcy once before, there are rules regarding when you can file again, you do not automatically lose the eligibility to file a second time.
Myth 8: You cannot eliminate IRS debt in Bankruptcy.
In some cases you can eliminate tax debt after 3 years. Even if the tax is non-dischargeable, you can pay back your taxes through a Chapter 13 plan at zero interest.
Myth 9: I have to pay taxes on what is discharged in Bankruptcy
False. In fact the exact opposite is true. The discharged of indebtedness is a taxable event outside the context of bankruptcy. So if you settle, or if your debt is written off, then you may be receiving a bill from Uncle Sam. If you discharge your debts in Bankruptcy then you will not have to pay taxes on any discharged debt.
Myth 10: They have Debt Management Plans that are better than Bankruptcy
Most of the time they are not better. Creditors are not required to abide by a DMP Plan, they can continue collection efforts (including lawsuits) while you are involved in one, and you will likely be taxed on anything that is forgiven. (See 9 above). Bankruptcy has the power of federal law, all creditors are required to participate and you will not be taxed on any discharged debt.