If you are considering filing bankruptcy, consult with an attorney to help you understand your options. You should not take lightly the choice to file bankruptcy. But you should also not dread bankruptcy for the wrong reasons. Don’t fall prey to fake news. It’s time to dispel a few myths about bankruptcy.
Myth 1: You will lose everything you own.
In most cases, you will be able to keep all of your property. Washington, D.C., Virginia and Maryland all have “exemption” laws that allow you to protect your assets. In most cases, you will be able to keep your house, car, retirement accounts, household goods, and other property. The government will not seize and sell everything you own. In fact, most bankruptcy filers keep everything they currently own. If you have a mortgage or a car loan, you can also keep those as long as you keep making the payments.
Myth 2: Everyone will know you filed for bankruptcy.
Bankruptcy is public record, and bankruptcy will appear on your credit report. But unless you are a very prominent person or a major corporation and the media gets word, only your creditors will be notified that you have filed bankruptcy. Newspapers in the Washington, D.C. area do not carry bankruptcy filing information, except in large Chapter 11 (business) cases.
Myth 3: Filing for bankruptcy hurts your credit for 10 years.
A bankruptcy will stay on your credit report anywhere between seven and 10 years. However, you can start rebuilding your credit immediately after your bankruptcy is discharged. Fore more about this, read my article Repairing Your Credit After Bankruptcy.
Myth 4: Both spouses must file bankruptcy.
Whether you and your spouse file together or separately depends upon who owes the debt. Any spouse who co-signs a debt owes that debt. If there are debts that a married couple wants to discharge on which they both signed, they will need to file together. Otherwise, the creditors may be able to collect from the spouse who does not file. It is common, however, for just one spouse to owe a significant amount. In that case, only the spouse who owes the debt will need to file.
Myth 5: Creditors can still collect against you if you file for bankruptcy.
Once you file for bankruptcy protection, the automatic stay takes effect. The automatic stay prohibits creditors from contacting you for any reason. No calls, no letters, no bills, no lawsuits. Once you received your discharge order, your creditors can no longer attempt to collect against the debts in any way. Instead, they must report to credit bureaus that the debt is discharged. In short, the bankruptcy discharge acts as a permanent injunction against all collection activity.
Myth 6: You can only file for bankruptcy once.
You can file for Chapter 7 bankruptcy only once every eight years. But the wait between Chapter 13 bankruptcies is only two years. And you can file a Chapter 13 bankruptcy immediately after a Chapter 7 discharge. There are many valid reasons for multiple bankruptcy filings. But you should consult with your attorney to determine what options best suit your circumstances.
Myth 7: You can max out all your credit cards before filing the bankruptcy.
Taking out personal loans, cash advances, or maxing out your credit cards just before filing for bankruptcy is considered a form of bankruptcy fraud. This kind of activity is easily detected by creditors. The creditor, usually a credit card company, will file a nondischargeability action in your case. And you will have to repay the entire balances that you accrued prior to filing. If you are considering bankruptcy and have recent credit card purchases, talk to a bankruptcy attorney to assess your options.
Myth 8: You will never get credit again.
Actually, bankruptcy will improve your debt-to-asset ratio dramatically, and as a consequence you will seem quite attractive to creditors. Within three months of filing a Chapter 7 bankruptcy, you will likely be bombarded with credit cards offers. At first, the interest rates will be very high. But over time, you will receive the same rates as everyone else.
Myth 9: Chapter 7 eliminates every type of debt.
Chapter 7 bankruptcy presents a perfect solution for many people. For other people, Chapter 7 offers an excellent but imperfect solution. For yet others, Chapter 7 in completely unavailable or does not make sense at all. Unfortunately, many debts cannot be discharged by a Chapter 7 bankruptcy. Child support, alimony, student loans, criminal restitution, certain types of back taxes, and debts incurred as the result of fraud are all generally not eliminated by the bankruptcy. If these types of debts comprise the majority of income, you may want to consider a Chapter 13 bankruptcy instead.
Myth 10: Only deadbeats file for bankruptcy.
If you are living paycheck to paycheck and never getting ahead, then bankruptcy may be the most responsible choice you can make. People often file bankruptcy after a life-altering event, job loss, divorce, or serious illness. Sometimes bankruptcy is the smart choice after chronic financial strain. Falling further and further behind on debts will not improve your circumstances. rarely improves a situation. Bankruptcy is a legal means by which honest debtors obtain a financial fresh start.
Myths About Bankruptcy Are Calculated to Create Fear
Many of the myths above are circulated by creditors, banks, and debt collectors. Don’t fall prey to the fake news. If you think bankruptcy might be right for you, look beyond the myths about bankruptcy. They’re all calculated to create fear.