Common Bankruptcy Myths
Myths that might keep you from getting the relief you deserve:
Myth # 1: You will lose your home and other assets
The Facts: False. One of the main reasons to file for bankruptcy protection is to keep ownership of your things. Once filing takes place, your assets are protected from the creditors by federal law. Though your property is protected from the creditors, you may still be required to make payments toward the items. The injunction that protects your assets during bankruptcy is called an automatic stay which stops all creditor actions to obtain your things. Certain exemptions vary from state to state so it is important to consult with an attorney to determine which items will be completely protected from the creditors.
Myth #2: Bankruptcy will permanently damage your credit
The Facts: Many times, individuals wait to file bankruptcy and actually create a pattern of behaviors that damage their credit on a consistent basis (late payments and/or going default on payments). See the following articles for more information on how bankruptcy affects credit.
Myth #3: You are cheating the system/Only losers file bankruptcy
The Facts: False. Bankruptcy is a federal law that is put into place to protect consumers. Many times bankruptcy is filed for something such as a failed business venture. Considering that our economy runs on the ability of persons to quickly recover from failed financial endeavors, utilizing the bankruptcy code is your right as a U.S. citizen. There are several laws that have been in place since April of 2005 that prevent abuse of the Bankruptcy Code. Cheating the system is an incorrect statement. Taking advantage of law set in place to protect you would be more correct. You must also consider that most bankruptcy filings occur after significant life events such as loss of a job, etc.
As a matter of fact, many very prominent and respected figures have filed for bankruptcy protection. Consider the following list of persons who have filed bankruptcy at some point:
* Milton Hershey – Founder of Hershey Foods
* Mickey Rooney - Actor
* Johnny Unitas – NFL Quarterback
* Burt Reynolds - Actor
* Wayne Newton - Singer
* Kim Basinger - Actress
* M.C. Hammer – HipHop Artist
* Walt Disney – Founder of Disney Enterprise
* Sammy Kershaw – Country Music Singer
* Marjorie Margolies Mezvinsky – former member of U.S. House of Representatives
Myth #4: Creditors will continue to harass you after you file
The Facts: False. Once you begin the bankruptcy process and the automatic stay is executed, creditors are not allowed to contact you. If a creditor continues to harass you, they are in violation of federal law.
Myth #5: You Can Only File Bankruptcy Once
The Facts: False. Though there are several restrictions pertaining to a person’s ability to file bankruptcy, a person is able to file for protection despite having filed in the past. The new bankruptcy laws have placed restrictions pertaining to the time between filings as well as what qualifies an individual or entity to file. The length of time required between filings is now much longer than it was prior to the change of the Bankruptcy Code in October of 2005. You will only be able to file Chapter 7 once during an 8 year period. The required time between filing a Chapter 7 and Chapter 13 is now 4 years and the time between refilling a chapter 13 case is now 2 years. To learn about some of the changes to the Bankruptcy Code read about The New Bankruptcy Laws and How they will affect you.
Myth #6: Both spouses have to file Bankruptcy
The Facts: False. As long as the debt that is being discharged is only in the name of the spouse who is filing. Very frequently, especially in younger couples, one spouse may have a large amount of debt in his/her name separate from the debts the couple incurred together. Both spouses must file if they intend to discharge debts that have both names on them.
Myth #7: Everyone Will Find Out that You Filed Bankruptcy
The Facts: False. Unless you tell someone or are a prominent person, people will not generally know that you have filed bankruptcy. Persons who are frequently in the media or large companies that decide to file may be singled out by the media. Though bankruptcy records are open to the public, it is unlikely that a person who is not seeking out this information would ever find out about your filing. The fact is, so many people file annually that it would require unimaginable time to make an exhaustive list of everyone filing. It is possible to privately file bankruptcy.
Myth #8: Filing bankruptcy will be a difficult process
The Facts: False (Somewhat). Bankruptcy is a hard thing to deal with emotionally, financially, etc. It is often much more involved than many debtors believe it to be initially. There is a great deal of paper work that must be completed correctly and many dates that must be observed. The process is relatively simple for debtors who decide to hire a bankruptcy attorney. A top bankruptcy professional can guide the debtor through every step of the process.
Myth #9: You must have a certain amount of debt to be eligible to file bankruptcy
The Facts: False. The government does not specify a specific minimum amount of debt required to file bankruptcy. The only true requirement is that the debt incurred appears too great to ever pay off. Electing to file bankruptcy is sometimes the best option for some while simple restructuring a budget can solve the financial problem for others. The law now requires all persons filing bankruptcy to go through credit counseling prior to beginning the procedure. Receiving professional counseling sometimes helps individuals find alternatives to filing bankruptcy.
Myth #10: You won’t be eligible for a credit card for a long time
The Facts: False. Though your credit rating will be lowered in the immediate and there will be a blemish on your credit report, credit card companies will likely still approve you under certain conditions. There will likely be a very high interest rate and a very low spending limit associated with the card initially but as you rebuild your credit you will be rewarded. The best option is to get a credit card through either the bank or credit union to which you belong. Other options include a prepaid cards or using a small loan to rebuild credit prior to taking a credit card.
Myth #11: You could lose your job if you file bankruptcy
The Facts: False. There is a statute within the Bankruptcy Code that prohibits an employer from discriminating against an employee on the sole grounds that the person is or once was a debtor in a bankruptcy filing. The employer does have grounds against the employee if the filing of bankruptcy is part of a greater series of behaviors leading to the removal of the employee.