The following are common myths about the bankruptcy process that I have heard from several of my clients.
Myth No. 1 – All of My Friends and Neighbors Will Know That I Filed for Bankruptcy
Your bankruptcy filing is a matter of public record. Generally, however, the only people who learn about a bankruptcy filing are your creditors and the people who you elect to tell. Bankruptcy Court information, including your filing, is obtainable on-line. In order to get this information on-line, you must register with the Court’s Case Mase Management System. This is generally limited to attorneys. Non-registered individuals can use the public computers available in the Bankruptcy Clerk’s office, but they would have to be specifically looking for your case.
None of my clients have ever come to me complaining that anyone learned of their bankruptcy filing aside from those that they want to know such as their creditors or those they choose to tell. You can rest easy that it is unlikely that your friends and neighbors will never know that you filed bankruptcy.
Myth No. 2 – All of My Assets Will Be Lost
Most people who file bankruptcy do not lose anything. Bankruptcy laws provide exemptions for your property. An exemption in property is the amount of property that you are allowed to keep. These exemptions are fairly generous, and only in the rare case will a person lose any assets. Even where the value of an asset exceeds the amount of exemption that is allowed, you may be able retain the asset by buying the excess interest from your bankruptcy trustee or through a Chapter 13 bankruptcy. It is very important that you speak with an experienced bankruptcy attorney to ensure that you do not lose any of your property unnecessarily.
Myth No. 3 – I Will Never Be Able to Buy a House or Car
This is not true. Generally, as time passes your credit will be rehabilitated. This is especially true where you have a history of steady employment, have post-bankruptcy savings, and can afford your purchases. I have many clients who have acquired new homes and motor vehicles after their bankruptcy filing. Life goes on.
Myth No. 4 – I Will Never Get Credit Again
Your fresh start after bankruptcy positions you to better manage credit which makes you a good candidate to would-be lenders. While I do not advocate using credit right after bankruptcy, I have many clients that report getting credit card offers immediately after receiving their bankruptcy discharge. Many other clients report the ability to acquire necessities such as a car or appliance on credit soon after their bankruptcies were complete. Everyone’s experience differs, but you will be able to rebuild credit after bankruptcy.
Myth No. 5 – Filing Bankruptcy Will Damage My Credit for 10 Years
You are confusing the fact that a Chapter 7 bankruptcy is reported on your credit report for 10 years with the impact that the bankruptcy will have on your credit. A Chapter 13 Bankruptcy remains on your credit report for 7 years. The bankruptcy is just one factor considered by a decision maker in determining whether to extend credit to you. It is fair to say that the bankruptcy may be less harmful to your future ability to obtain credit as compared to defaulting on the existing debt that you have which you cannot pay. A bankruptcy on your record does not mean that you will be denied credit.
Myth No. 6 – My Spouse Will Have to File If I File Bankruptcy
In most cases it makes sense for both spouses to file for bankruptcy protection where both spouses are obligated on the debt. Where this is not the case, or in the case where one spouse does not want to file, one spouse can absolutely file without the other.
Myth No. 7 – It Is Difficult to File for Bankruptcy
The most difficult part of your bankruptcy case is the decision to file. It is emotional and scary. An experienced bankruptcy attorney will calm your fears by explaining to you the entire process and address all of the issues required in the bankruptcy filing. You will only have to provide your attorney the necessary financial information and he or she will do the rest. Typically, you will attend one meeting of creditors with your attorney where you will be questioned by a bankruptcy trustee. This is not a court proceeding and most people never see the inside of a courtroom. Sixty days after this meeting, most people get their bankruptcy discharge and their case closes. The most difficult part of the process is you taking the first step.
Myth No. 8 – I Am a Deadbeat If I File for Bankruptcy
The majority of my clients never dreamed they would be forced to seek protection from their creditors. In fact, most of my clients are hard working individuals who for most of their lives have satisfied, and continue to believe that they should satisfy, their financial obligations. These people incurred credit commensurate with their incomes and ability to pay. It is usually an unexpected change of life event such as a divorce, illness or layoff, which renders them unable to meet their financial obligations.
Only after the professional bill collectors arrive harassing, embarrassing and extracting more from these people than could reasonably be expected under the circumstances do they seek counseling from a professional. Indeed, many of my clients have spent their savings and retirement funds in an effort to repay their debt, mostly credit card debt at near usurious rates. Often times their failed efforts to repay their debt renders these people unable to pay for their necessities such as housing, utility and car payments.
Bankruptcy is not shameful. The law provides for the relief that you need by establishing the bankruptcy process. When bankruptcy is necessary, it is a very valuable financial tool that you can and should take advantage of.
Myth No. 9 – Bankruptcy Cannot Help Me With My Tax Obligation
In some cases, tax debt can be addressed, and even discharged, in a bankruptcy. Income taxes that are more than 3 years old may be dischargeable. Even when the taxes are not more than 3 years old, certain tax penalties are dischargeable in a Chapter 13 or a Chapter 11 bankruptcy, and a repayment plan can be forced on the taxing authorities for up to 5 years. Bankruptcy also prevents the taxing authorities from seizing assets and garnishing wages. When faced with a tax collection issue, speak with an experienced bankruptcy lawyer to see if bankruptcy can benefit you.
The bottom line is that there is a lot of misinformation about bankruptcy out there. It is true that bankruptcy can be a minefield. You have to know who you are speaking to, what you are reading and where the information that you are getting is coming from. Thus, you need to make sure that you are getting quality information. Also, you need to ensure that the attorney you choose to represent you is experienced, knowledgeable and will spend the time necessary so that you and your property are protected throughout the entire bankruptcy process.