Bankruptcy Myths

There are many things that people don’t understand about bankruptcy.  Here are a few myths that might clear somethings up.

 

MYTH # 1:  THE LAWS CHANGED AND I CAN’T FILE FOR BANKRUPTCY ANYMORE.

This is simply false.  The laws did change in 2005 and made it harder for those with high incomes to get relief.  These laws, however, had little effect on the majority of people who find themselves in need of bankruptcy protection.  What’s more, even those with high income can qualify for Chapter 13 bankruptcy and, in many cases, Chapter 7 as well.  An experienced attorney can evaluate your situation and let you know your true rights.  The bottom line:  bankruptcy is still available for those who need it.

MYTH # 2:  IF I FILE FOR BANKRUPTCY, THEY WILL TAKE MY HOUSE AND ALL MY OTHER ASSETS.

Not true!  For individuals filing for bankruptcy protection, the law allows them to protect certain assets like a home, car, retirement accounts, household goods, clothing, and jewelry.  For most of my clients, we are able to protect all of their assets.

MYTH # 3:  IF I FILE FOR BANKRUPTCY, I WILL NEVER BE ABLE TO GET ANOTHER LOAN.

Also not true!  Creditors look at a number of factors in deciding when to loan money.  Some will even provide credit during or right after the bankruptcy.  In the long term, a bankruptcy may actually help your credit because it wipes out a lot of debt that brings your credit score down.

MYTH # 4:  I WILL LOSE MY JOB IF I FILE FOR BANKRUPTCY. 

This myth is so common that Congress actually made a law that employers may not fire someone solely because they filed for bankruptcy.  On top of that, employers are not generally notified that your bankruptcy case has been filed, unless you decide to tell them.

MYTH # 5:  EVERYONE WILL KNOW THAT I FILED FOR BANKRUPTCY.

Not the case!  Although bankruptcy filings are public records, there are so many people in need of bankruptcy, that it is likely that, unless you are a rock star, the only people who will find out about your case are your creditors.

MYTH # 6:  ONLY BAD PEOPLE FILE FOR BANKRUPTCY. 

Unfortunately, dire financial circumstances do not only happen to certain types of people.  Most people who file for bankruptcy are honest, good people who have had events occur beyond their control:  loss of employment, medical or other unexpected bills, divorce, or a combination of factors.

MYTH # 7:  I CAN’T FILE FOR BANKRUPTCY UNLESS MY SPOUSE AGREES.

Again, not true.  Each individual can file for bankruptcy protection to deal with their debts.  Sometimes it makes sense for both spouses to file, but spouses can file without the other filing as well.  We do recommend that you discuss your financial situation with your spouse before making any decisions about bankruptcy.

MYTH # 8:  BANKRUPTCY WON’T HAVE ANY EFFECT ON BACK TAXES. 

This one is tricky.  While certain taxes are not dischargeable in a bankruptcy case, many are.  It depends on the type and age of the tax debt, as well as other factors.  Even if taxes are not dischargeable, in general you can still be protected from them if you include them in a Chapter 13 repayment plan.

MYTH # 9:  AS LONG AS I AM FILING FOR BANKRUPTCY, I SHOULD RUN UP AS MUCH DEBT AS I CAN. 

Not a good idea.  Our bankruptcy laws have been around since the 1800s.  They have figured out all the tricks.  Running up debt with the intention to discharge it in bankruptcy may put your entire case in jeopardy and may subject you to other penalties.  And, it’s just wrong.

 

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