Myth 1 Bankruptcy relief is no longer available – Despite a tremendous amount of misinformation concerning the 2005 reforms to the bankruptcy code, very little has changed concerning the individual’s ability to seek financial relief.
Myth 2 Everyone will know I have filed for bankruptcy – Unless you are a prominent person or a major corporation and filing is picked up by the media, the chances are very good that the only people who know about the filing are your creditors. While it is true that bankruptcy is a public legal proceeding, the numbers of people filing are so massive, very few publications have the space, the manpower or the inclination to run all of them.
Myth 3 All debts are wiped out in a Chapter 7 bankruptcy – Certain kinds of debt cannot be erased. They include child support, alimony, student loans and debts incurred as the result of fraud. If you have defrauded someone and a judgment has been made against you, that won’t be discharged either.
Myth 4 I will lose everything I have – This is the misconception that keeps people who really should file for bankruptcy from filing. While bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car, money in qualified retirement plans, household goods, and clothing. Most people will keep everything they have.
Myth 5 I will never get credit again – Quite the contrary. It won’t be long before you are getting credit card offers again. They will just charge you very high interest rates. On the other hand, if you are planning on purchasing a home or a car, you might want to do so prior to filing. These will be tougher to get after you file and the impact of even a single point of interest may be significant.
Myth 6 If you are married, both spouses have to file for bankruptcy – Not necessarily. Whether one or both spouses seek relief is a function of the type of debt owed and whether the debtor(s) live in a community property state. In many instances, only a spouse need to seek bankruptcy relief.
Myth 7 Only deadbeats file for bankruptcy – Most people file for bankruptcy after a life-changing experience, such as divorce, the loss of a job or a serious illness. They have struggled to pay their bills for months and just keep falling further behind.
Myth 8 I don’t want to include certain creditors in my filing because it is important to me to repay them back someday – Just because a debt is discharged in bankruptcy does not prohibit you from repaying the obligation at some point in the future. The discharge prevents the creditor from asking.
Myth 9 Filing for bankruptcy will immediately improve my credit rating – This sounds like an ad from a less than honest attorney seeking bankruptcy clients. Any reasonable person will understand the filing a bankruptcy does nothing to immediately improve your credit rating. However, filing for relief may start the process of credit rehabilitation.
Myth 10 You cannot get rid of taxes through bankruptcy – Income tax obligations older than three years past due, in which the tax was assessed more than 240 days prior to the filing of a bankruptcy and for which the tax return was filed more than two years prior the filing of the bankruptcy petition are generally discharged.
Myth 11 You can only file for bankruptcy once – The truth is, if you need to, you can file a Chapter 7 bankruptcy once every eight years. For a Chapter 13 you can file more often than that.
Myth 12 I can max out all my credit cards, file for bankruptcy and never pay for the things I bought – Simply put, borrowing money without the intent to repay is called FRAUD and is not dischargeable. Bankruptcy relief is intended for the honest, but unfortunate debtor.