Bankruptcy is a scary word for most people. Why? Because there are a lot of lies and misinformation about bankruptcy floating around.
Additionally, there are special interest groups (such as banking institutions) who focus on fighting consumer bankruptcy. Why? The answer is simple: If companies can prevent consumers from filing bankruptcy, or at least delay the process, they can get more money out of the consumers.
Sure, bankruptcy is a matter that should not be taken lightly. Your entire financial situation should be evaluated before you make the decision to file. The most appropriate way for you to determine whether or not bankruptcy is a smart decision for your financial situation is to consult with a reputable lawyer.
Myth #1 - Bankruptcy is for People Who Don’t Want to Pay Their BillsMost of the clients we talk to have done everything in their power to work out arrangements with their creditors. Unfortunately, creditors are extremely impatient and unaccommodating. They want to collect the money that is owed to them now.
The fact of the matter is - creditors are in the winner’s seat. If you have not filed bankruptcy, the law leans toward creditors.
Creditors have the ability to:
Garnish your wages;
Levy your bank accounts;
Harass you and your family;
Seize your property;
Negatively affect your credit score;
Make your life stressful.
Myth #2 - Married People Must File Bankruptcy Together
Most people assume that if you are married, you both have to file a joint bankruptcy. But, this simply is not true.
If one spouse has the majority of the debt and the other spouse has only a minuscule amount of debt, it would make sense for the spouse with the majority of the debt to file bankruptcy alone.
Once again, it is best to consult with a knowledgeable bankruptcy lawyer to help you determine whether one or both spouses should file bankruptcy.
Myth #3 - You Will Lose Your Home or CarA lot of creditors will tell you that filing bankruptcy cannot help you. You are going to lose your house or car, no matter what.
In most situations, as long as your home has not already been foreclosed on or your car has not already been repossessed, there is a good chance you will be able to keep them. As long as you are completely honest with your lawyer, your chances of holding onto the property that you have worked so hard for are extremely good.
You will be able to pay the arrearages or back pay, over a period of three to five years. Quite often, the interest rate is much lower, too.
Myth #4 - You Cannot File Chapter 7 Bankruptcy if You Have Equity in Your HomeMost people want to qualify for Chapter 7 bankruptcy. Understandably so, under a Chapter 7 bankruptcy, people are not required to make monthly payments to restore their credit.
One of the myths circulating around is that people do not qualify for Chapter 7 bankruptcies if they have equity in their homes. However, if you have some equity in your home and you want to file bankruptcy, you should consult with a lawyer.
Our law firm has been able to help plenty of people - both individuals and couples - who had equity in their homes. If a Chapter 7 bankruptcy is not a choice for you, we will work hard to get you the lowest possible monthly payments for your Chapter 13 bankruptcy.
Myth #5 - Bankruptcy is Immoral, Unethical, or an Admission of FailureSeriously? Tell that to Walt Disney, Henry Ford, or Milton Hershey. After they filed bankruptcy, they built empires!
Even our President has filed bankruptcy for several of his businesses. That has not affected his status as a billionaire.
According to Statista.com, 752,160 bankruptcies were filed in the U.S. in 2019. That is the figure for just one year, so there are millions of Americans who have been in the same exact boat you are in right now, and they ended up filing bankruptcy.
After weighing out their options, they realized that bankruptcy would give them a fresh start. It was probably the only way that they were going to be able to build a more secure future.
Bankruptcy is not an admission of failure. Rather, it is the solution to a financial situation that has gotten out of control.
There is nothing immoral or unethical about filing bankruptcy. How does wanting to live a more secure financial existence sound immoral or unethical? You are trying to make things right. Feel good about it.
Myth #6 - Filing Bankruptcy is DifficultSure, bankruptcy procedure and laws can be a bit confusing, but that is what we are here for - to help you navigate through the tough parts.
You see, the credit industry focuses energy on the “fake news” outlets to make you think that filing bankruptcy is difficult. Or worse yet, they make bankruptcy sound like a trap you will get stuck in.
Bankruptcy lawyers know the ins and outs of bankruptcy law. They can instruct you every step of the way. Bankruptcy is not difficult when you have a skilled and knowledgeable lawyer.
Myth #7 - All of Your Debts Will Be DischargedOn the other end of the spectrum are myths like this one. Not all debts can be discharged under Chapter 7 bankruptcy.
The following debts cannot be discharged under Chapter 7:
The majority of student loans;
Parking and red light tickets;
Some income tax debts (but not all);
Back child support.
Also, if you want to keep your home or your car, you will have to pay those loans. Depending on your situation, a Chapter 13 bankruptcy might be better than a Chapter 7 bankruptcy if you have certain types of debts.
Myth #8 - You Cannot File Bankruptcy More Than OnceThis is not always the case. Once you have filed bankruptcy, you will have to wait a specific amount of time. After that specific amount of time has expired, you should be able to file a new bankruptcy case.
Myth #9 - I’m Not Sure if I Want the Embarrassment - People Will Know I Filed BankruptcySure, bankruptcies are public record. They might be published in the local newspaper or posted online. Most people will not stumble across the publishing of your bankruptcy, though.
That person would have to be watching bankruptcy filings all of the time to see your name pop up. Additionally, so many people file bankruptcy, your name and bankruptcy filing would be like stumbling across a needle in a haystack - and do you know anyone who has that type of luck?
Myth #10 - I Do Not Make Enough Money to File Bankruptcy/ I Make Too Much Money to File Bankruptcy
There is no such thing as not making enough money to file bankruptcy. Congress designed what is called the Means Test for filing Chapter 7. Most people fall within the income levels in the Chapter 7 Means Test. If your income falls within the Chapter 7 Mean Test, you can file Chapter 7 bankruptcy. If your income does not fall within the Chapter 7 Means Test, you should consult with a bankruptcy lawyer, because we can help you determine exemptions that might still qualify you for Chapter 7 bankruptcy.
When all is said and done, you might make too much money to file a Chapter 7 bankruptcy. In that case, you would move onto the Chapter 13 Means Test and most likely file a Chapter 13 bankruptcy.
The bottom line is: no matter what your income is, there is a type of bankruptcy you can file. You will either qualify for a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.
Myth #11 - If I File Bankruptcy, I Will Never Be Able to Obtain New CreditThis is completely false.
It might take some time, but typically, Chapter 7 bankruptcy filings result in credit scores rising. In fact, it should not surprise you to see your credit score rise up to the 700’s. It is not surprising to hear that our clients are able to get car loans or mortgages after Chapter 7 bankruptcy.
Myth #12 - Income Tax Debts (IRS) Cannot Be DischargedFor the most part, IRS debts are ineligible to be discharged in bankruptcies. However, if you have income taxes that are more than three years old, then they should be eligible for discharge. If you do owe a debt to the IRS, you should be able to include that in your Chapter 13 bankruptcy filing to make payments on it, and that will halt all future penalties and interest.
This is one of the trickier bankruptcy rules, and it depends on the due date of the taxes, so you should always consult with an experienced bankruptcy lawyer for advice about your specific situation.
Myth #13 - I Will Have to Pay All My Bills In Full Under Chapter 13This is not true and will be dependent on the Chapter 13 Means Test. Unlike the Chapter 7 Means Test, which determines your eligibility for filing Chapter 7 bankruptcy, the Chapter 13 Means Test determines what your dividend will be when your Chapter 13 bankruptcy filing has completed.
The dividend is the amount you will pay to unsecured creditors. Most clients pay a small dividend on their debts, and many pay only a 10% dividend or less.
Myth #14 - My Student Loans Will Be DischargedUnfortunately, student loan debts cannot be discharged in bankruptcies. If you file a Chapter 13 bankruptcy, all collection actions for your student loan account will stop until your case closes, but you will still be held accountable for your student loan and the interest it accrues after your bankruptcy is filed.
Myth #15 - I Should Cash Out My 401(K), IRA, or Pension Before I File Bankruptcy
This is a great, big NO.
Since qualified pension plans are exempt from bankruptcy attachment, it is best to keep those funds right where they are. If you do “cash” those funds out before you file bankruptcy, you convert something that is exempt into funds that are not exempt. You could, in turn, lose that money. It is better to leave it where it is.
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.