Bankruptcy Myths

Many people have heard things about bankruptcy that simply aren't true. Read these fifteen common myths to find out why bankruptcy does not deserve the bad rap it has gotten over the years.

 

Myth #1: Bankruptcy will hurt my credit for ten years.

It's true that a bankruptcy will stay on your credit report for seven to ten years, but you will probably have an easier time reestablishing credit that you think. Your debt has been wiped out, leaving you with a higher debt-to-income ratio, and no late payments. Lending institutions (homes, cars, etc.) will target you because they know you can't file again for eight years and they hope that you can make only minimum payments until you end up paying back ten, twenty, thirty times more than what was originally charged. The best bet is to use a secure credit card, pay on time for six months, and see your credit score rise by sometimes fifty to a hundred points! Bankruptcy allows you to get a fresh start and rebuild yourself into a stronger, more financially secure position.

 

Myth #2: Everyone will know that I filed for bankruptcy.

Bankruptcies are not sealed (they are public record), but only people you tell will know! Unless someone pulls the information and posts it, it will not be public knowledge. Don't worry-professional athletes, lawyers, doctors, single mothers, women in their seventies on social security, husbands and wives with two incomes, small business owners-people of all types have filed for bankruptcy at one time or another. Anyone can lose a job, get divorced, or experience sudden illness. Don't be afraid to do something about it.

 

Myth #3: I can't file because the law changed.

The new law (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) didn't really change much, other than making bankruptcy more paperwork intensive and harder to file without an attorney. The truth is that the same people who could file before the law can still file now. In fact, since 2005, the number of people filing has increased every year, and now in 2009, we are almost back to the same levels as before the law changed.

 

Myth #4: I am a bad person if I file for bankruptcy.

The media has demonized bankruptcy to the point that no one wants to file. However, many people experience job loss, illness, or divorce. You are not a bad person; you have just experienced a bad event. If you have to choose between paying your debt and feeding your family-choose your family.

 

Myth #5: I can pick and choose what to include in a bankruptcy.

You must include all assets and liabilities in a bankruptcy filing. Everything you own must fall under the umbrella of bankruptcy. Full disclosure is the key. Many people think, for example, "If I tell my attorney about my rental property, I'll lose it," or "My mother-in-law cosigned for our home and I don't want to hurt her credit." Don't worry. Tell your attorney (and trustee) about everything-it's the only way they can really help you. (Side note: If a co-debtor doesn't file, it won't be reported on his or her credit report.)

 

Myth #6: It's hard to file bankruptcy.

A specialized bankruptcy attorney does this every day by following an organized, efficient system. He or she will help make sure the results you want are achieved, which can be difficult or impossible if you do it yourself.

 

Myth #7: I'll never be able to own property again.

Too many people have had to file bankruptcy for the lenders to ignore them. The truth is that former bankruptcy clients have reported great experiences being able to obtain and own property!

 

Myth #8: I'll lose everything.

Actually, you are filing so you DON'T lose everything! In the old days, you were thrown in debtor's prisons or on the street. Now, bankruptcy gives you a fresh start without losing everything. The courts want you to have what you need to return to being a contributing member of society.

 

Myth #9: My spouse and I have to file together.

Often, it is more advantageous to file together if both of you incurred debt, but one can file without the other if one spouse doesn't want to file or if, for example, the spouses maintain totally separate incomes and expenses.

 

Myth #10: Bankruptcy can't get rid of back taxes.

A lot of taxes are actually dischargeable, but to determine which ones, there is a complicated test and series of questions. Have your attorney review and analyze whether your back taxes are dischargeable. If they are, bankruptcy can stop garnishments, stop levies, and remove liens against your property.

 

Myth #11: I can only file once.

You can file as many times as you want, depending on what type of bankruptcy you filed, when, and whether it was discharged or dismissed.

 

Myth #12: I will never get credit again.

Not true. See Myth #1.

 

Myth #13: Only losers do file.

Do you consider Walt Disney, Henry Ford, Kim Basinger, and Donald Trump losers? They and many other successful people have filed bankruptcy to find relief and get a fresh start.

 

Myth #14: Creditors can still harass me if I file.

Actually, creditors are prevented from calling, harassing, foreclosing, repossessing, or engaging in any collections activities (without court permission) while you are in active bankruptcy. This is powerful because you are in control now instead of them.

 

Myth #15: Filing causes more family trouble than divorce.

Attorneys have often seen families crying, fighting, marriages about to end, couples frustrated, upset . . . all over money problems. But this is what an experienced bankruptcy attorney can do: help you save your marriage because a bankruptcy will remove the financial obstacle to a happy marriage and let you sleep at night.

 

Do not assume you can't or shouldn't file. Contact an experienced bankruptcy attorney and find out if you can start the process that will lift a huge weight off your shoulders and give you a fresh start.