Many people are worried about the consequences of bankruptcy but they don’t need to be. Most of their concerns are based on outdated myths about bankruptcy, Creditors seem to work hard to promote the common misconceptions, with a clear financial advantage at your expense.
10 Bankruptcy Myths
MYTH No. 1
You will never get credit again. False. A bankruptcy may be on your credit report for up to ten (10) years from the date you file for bankruptcy. However, once your bankruptcy is discharged and closed, you can start rebuilding your credit. Many people buy new homes and vehicles, and even qualify for a credit card, within months of a bankruptcy discharge. A large number of creditors may start offering credit immediately following the collision of the bankruptcy case. You may qualify for new credit much sooner than anticipated if you receive adequate planning and counseling.
MYTH No. 2
Lenders will ignore you if you file for bankruptcy protection. False. Most of the stigma related to filing bankruptcy disappeared in 2005 when Congress passed new bankruptcy laws. Large numbers of lenders understand the problems with the economy and the effect this has on consumers like you. The result is that many lenders will offer credit, even to those affected by filing bankruptcy. However, interest rates may be higher after a bankruptcy discharge.
MYTH No. 3
Filing for bankruptcy is equivalent to stealing and you might go to jail. False. People who file for bankruptcy protection, whether through Chapter 7 or Chapter 13, are honest people. They, just like you, file bankruptcy because they find themselves in challenging financial circumstances. The vast majority of people file bankruptcy as a last resort and take advantage of the protection that bankruptcy offers to help them through this difficult period. Filing for bankruptcy protection does not make you a bad person. Congress created federal bankruptcy laws to help hard working people eliminate unbearable debt and move on with their lives. When facing this hardship, we can help!
MYTH No. 4
Filing for bankruptcy is hard and might result in an audit. Mostly False. Filing for bankruptcy is not as hard as it used to be. The law does require certain forms to be completed and filed with the Court, but most of the documents are filed electronically. We will have you complete an intake form, which provides us information regarding your property value and a list of your debts and expenses. We also ask you to provide three (3) months of bank statements, two (2) years of tax returns and six (6) months of paystubs. We will take care of the rest. We have the dedication and experience to make your case run efficiently.
Once your case is filed, a Bankruptcy Trustee will be assigned to your file and may request that you provide additional financial statements and documents. Audits are extremely rare. The current statistics show that approximately 1 out of 1000 cases filed are audited. In the rare case you are audited, we can successfully assist you through the audit process.
MYTH No. 5
If you are married, you can’t file for bankruptcy protection for yourself. False. Current bankruptcy laws allow anyone to file for bankruptcy protection, either jointly or individually. You and your spouse have to decide whether a joint bankruptcy filing is warranted. It may be prudent to file jointly if you and your spouse have joint debts, including but not limited to a mortgage or credit cards. This tactic will eliminate or restructure payments of these debts. However, if you recently married and your spouse has good credit and you have no joint debts, it may be best to file individually so that you can eliminate your own debts.
MYTH No. 6
You are only allowed to file for bankruptcy protection one time. False. Although Congress tightened bankruptcy laws in 2005, you can file for bankruptcy protection more than one time. It ultimately depends on the type of bankruptcy you filed and when you filed it.
Chapter 7 bankruptcy protection permits you to get a discharge every eight (8) years. Chapter 13 bankruptcy protection permits you to get a discharge every two (2) years.
If you receive a Chapter 7 bankruptcy discharge, you have to wait six (6) years before receiving a Chapter 13 discharge. If you receive a Chapter 13 bankruptcy discharge, you have to wait four (4) years before receiving a Chapter 7 discharge.
If your prior bankruptcy filing was dismissed, you will not be required to wait to refile, unless your case was dismissed “with prejudice”, which will require a period of time before you are allowed to refile. In this case, it is imperative to contact an experienced attorney since certain motions have to be filed so that bankruptcy protection can be extended in your current case. We have the knowledge and experience to help you negotiate this process.
MYTH No. 7
Filing for bankruptcy protection will irreparably harm your credit score. False. Filing for bankruptcy protection will affect your credit score. However, your credit score will not be irreparably harmed. You might be able to increase your score by filing for bankruptcy protection depending on your circumstances, including your total debt. Whether you file for Chapter 7 or Chapter 13 protection, bankruptcy helps suspend the negative effects of your unresolved debt. Negative activity will stop, including late fees, interest, attorney fees and collection costs. The record of the bankruptcy filing will also be removed from your credit report after ten (10) years.
MYTH No. 8
Some creditors are exempt from the bankruptcy process and they can still sue you. False. One main reason to file for protection through bankruptcy is to stop all collection actions. Once you file for Chapter 7 or Chapter 13 bankruptcy protection, you receive an automatic stay from the Court. This means that a creditor, which includes its attorneys, collection agencies, and other representatives or agents, has to stop all collection activities against you.
Federal bankruptcy laws prohibit creditors from contacting you, including but not limited to written correspondence or bills, telephone calls, filing suit, continuing litigation actions or collecting on previous judgments.
MYTH No. 9
Most individuals fail to qualify for bankruptcy protection due to the “Means Test”. False. When Congress passed new bankruptcy legislation in 2005, creditors insisted that bankruptcy would only protect a minuscule number of the very poor or impoverished population. As a result, many people became alarmed. This was a substantial distortion of Congress’s intent in enacting this legislation. Actually, Congress changed the manner in which a debtor qualifies for bankruptcy protection, which is called the “Means Test”. The “Means Test” does not stop people from filing for bankruptcy protection. Since the new legislation was enacted, bankruptcy filings have actually escalated, especially following the foreclosure emergency. We also expect that the COVID-19 pandemic will drastically increase people’s need for bankruptcy protection as well.
MYTH No. 10
Filing for bankruptcy protection will destroy your family. False. There are many issues that lead to family discord. Bankruptcy may provide an outlet for some of those issues. You and your spouse may be contemplating divorce due to your financial situation. We often see our clients confront this problem. Sometimes, you can stop this crisis by obtaining bankruptcy protection and proceeding forward with a new financial beginning.
Filing for bankruptcy protection can be one of the hardest decisions you make during your lifetime. However, the lack of financial pressure may be exactly what your relationship needs to survive.
Are You Considering Filing For Bankruptcy?
If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.