Top 10 Bankruptcy Myths

By: Timothy McFarlin | Published: May 4th, 2011 | Category: Bankruptcy

Bankruptcy is a subject that many people discuss, but not many people really understand. Few people, aside from those who have filed before, know the true ins and outs of the bankruptcy process. Many times, urban myths about bankruptcy keep people from filing for bankruptcy due to the fear of what’s going to happen to them as a result.

These negative myths about bankruptcy have spread through gossip and hearsay, but nowadays with so many people filing for bankruptcy we thought we would debunk some of the most common bankruptcy myths that we hear about for you.

Bankruptcy Myth #1

You will never be able to buy a home again.

It is true that filing for bankruptcy may make is more challenging to qualify for a new home loan, but it certainly is possible, and after only 24 months in many cases. In fact, it is now possible to qualify for an FHA loan (and put as little as 3% down) just 24 months after a bankruptcy filing. For many clients bankruptcy actually gets them there faster because it eliminates their unsecured debt (which would have taken years to pay off) and puts them in a position to be able to buy in about 2 years. Once you’re debt free, many options start opening up.

Bankruptcy Myth #2

You will never have a credit card again.

After your bankruptcy has been processed by the court and you receive a “discharge” of your debts, it is certainly possible to immediately qualify for a credit card. However, chances are that your credit limit will be pretty small, and your interest rate may be fairly high. But, nonetheless you will be able to have credit cards again, which if used wisely will really help to rebuild your credit.

Bankruptcy Myth #3

All of your debts will be discharged.

Some debts simply may not be dischargeable in bankruptcy such as; child support, government-issued or government-guaranteed student loans, and debts incurred as the result of fraud. Additionally most court fines and fees are also typically not dischargeable such as tickets and citations as well as court ordered restitution.

Bankruptcy Myth #4

Everyone will know that you filed for bankruptcy.

Unless you are a well-known public figure, the only people who will know that you have filed bankruptcy will be your creditors. Although, bankruptcy is considered a public legal proceeding, there are so many bankruptcies that chances are slim that anyone will find out that you have filed bankruptcy. A person would have to dig through public records to find your case. Even the nosey neighbors don’t have that much time on their hands.

Bankruptcy Myth #5

You will lose everything that you have.

This is probably the most common myth, and unfortunately, it prevents many people who need to file for bankruptcy from doing it. Bankruptcy laws do vary from state to state, but every state has exemptions designed to protect certain types of assets up to a certain value, such as your house, your car, household goods, clothing, and even money in qualified retirement plans. Most people are surprised at the amount of assets they are able to keep and still get rid of all their debts. If this is the number one reason why you haven’t contacted a bankruptcy attorney yet, contact us today. We can help you to assess your bankruptcy options, and give you an idea of whether any of your assets would be at risk.

Bankruptcy Myth #6

Only losers file for bankruptcy.

This myth couldn’t be further from the truth. Most bankruptcies are the result of a life-changing event, such as a divorce, an illness, or a death in the family. Many times, situations that are completely unavoidable, and out of your hands are to blame for bankruptcy. Sometimes bad things happen to good people. Other times it is the economy, which caused your business to fail. A lot of creative people will file bankruptcy at one point in their lives, when trying a new business venture, or project, but many times, they will become financially successful later on in their life.

Bankruptcy Myth #7

If one spouse declares bankruptcy it will affect the other spouse’s credit.

Bankruptcy can either be filed by an individual or a married couple. If only an individual spouse declares bankruptcy, the bankruptcy does not go on the other spouse’s credit. A bankruptcy is linked to a person’s individual social security number, not a “family” name. If spouses have joint debt, that account will likely be closed by the filing, but joint bank accounts are typically not affected.

Bankruptcy Myth #8

Filing for bankruptcy is a difficult process.

With a rock solid bankruptcy attorney on your side, filing for bankruptcy isn’t that difficult. This is what an experienced bankruptcy attorney is for. We do most of the work for you. You provide the necessary information, we explain the process and file your bankruptcy case. There are certain forms of bankruptcy that are more complicated. But, again, a good bankruptcy lawyer will be more than capable of handling those more complicated cases with ease.

Bankruptcy Myth #9

Creditors will still harass me even after I file for bankruptcy.

Creditors are not allowed to contact you once your bankruptcy attorney has set in motion your bankruptcy. The bankruptcy law provides for an automatic stay. This means that a civil restraining order put on all your creditors and prevents any collection activity. A creditor may not contact you in any manner to collect a debt, they can’t call, send letters, or take any legal action once your case is filed and the automatic stay is in effect. If a creditor ignores these rules, they can be made to pay you damages.

Bankruptcy Myth #10

It’s okay for me to max out my credit cards before I file for bankruptcy.

This is not a good idea; in fact it’s actually fraud. Bankruptcy judges do not look well upon that type of last minute charging. Maxing out your credit cards right before declaring bankruptcy will only cause you trouble and creditors can sue to make those charges “non-dischargeable.” If you are looking to declare bankruptcy, it’s best to stop using your credit cards as soon as possible, however if you have been using the credit cards recently, it is certainly still possible to file a bankruptcy and discharge those debts under most circumstances. It is a matter for your California bankruptcy attorney to explain and navigate.

 

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