Bankruptcy Myths
"Peter helped me eliminate $120,000 worth of debt. I was dead set against bankruptcy even though I had over $70,000 in credit card debt and a $30,000 bank loan. As a business owner, I didn't want to publicly admit defeat. Peter suggested I file personal bankruptcy to give me a fresh start without disrupting my business. When my bankruptcy was final I bought a car, and within a year, I started receiving credit card offers. I'm finally free of that crushing debt thanks to Peter!"
Many people are reluctant to file bankruptcy because of misconceptions and the stigma that bankruptcy has. In fact, many people find themselves in financial trouble through no fault of their own and bankuptcy is an excellent way to get a fresh start.
Here are some common myths about bankruptcy:
Myth 1 —
Filing for bankruptcy hurts your credit for 10 years
Not True. Bankruptcy stays on your credit about 7 to 10 years. Although the bankruptcy will stay on your credit, you can start rebuilding your credit once your bankruptcy is discharged. Making current, full payments on debt is one way to start building your credit while you are still in the bankruptcy. Once you are out of bankruptcy, make sure that you watch your income to debt ratio and try to not finance more than 40% of your credit limit.
Myth 2 —
Everyone will know you filed for bankruptcy
Not True. Bankruptcy is public record but unless you are a prominent official in society, people aren’t going to go looking. The only people who are going to know are those who you tell and those who have access to the bankruptcy court record system.
Myth 3 — There is no help with the new bankruptcy law
Not True. The bankruptcy reform act of 2005 changed only the method in which debtors qualify for the different types of bankruptcy. It doesn’t prevent people from filing, and in most situations people are still able to get the same relief now as before the law changed.
Myth 4 —
You are a bad person for filing bankruptcy
Not True. There is a reason that over one million people file for bankruptcy each year and it is not because they are bad people. Bankruptcy is a solution to help good people go through a bad time. It provides hard working people with the fresh start that they deserve, but are not able to obtain.
Myth 5 — You can pick and choose what to put into bankruptcy
Not True. You do have to list all of the debts that you owe and the property that you own. You cannot discriminate between creditors, even if you want to keep paying them. It is good to want to continue paying creditors, but it is still mandatory to include the debt. If you feel like paying it after the bankruptcy then go ahead, but you will not be obligated to.
Myth 6 — It's hard to file for bankruptcy
Not True. There is a lot of paperwork involved, but having a skilled attorney makes the process much smoother. Filing bankruptcy is even electronic these days, which minimizes paperwork on your part.
Myth 7 — You will never be able to own property again
Not True. Although lending standards change due to the state of the economy, you can start rebuilding your credit shortly after you recieve your discharge. You may even qualify for a home mortgage in as little as two or three years.
Myth 8 — You will lose everything you own
Not True. Bankruptcy allows you to keep your property. Outside of bankruptcy you could lose your property to creditors, but once you have filed for bankruptcy you and your property are protected. Laws that allow you to keep property vary from state to state and you should consult an attorney in your area to property advise you of the laws in your jurisdiction. Bankruptcy doesn’t always wipe out liens, which means if you want to continue to keep the property you will need to continue to pay the lien.
Myth 9 —
Both you and your spouse have to file bankruptcy together
Not True. You can file together or separately, that is your choice. In many cases it makes sense for husband and wife to file together, but in some instances the spouse might not want to file. This is absolutely fine and definitely allowed by the court.
Myth 10 — You can't get rid of back taxes in bankruptcy
Depends. You can get rid of income taxes that are more than three years old by filing bankruptcy. There are several qualifications that have to be met in order for the taxes to be wiped out, but having a portion wiped out is better than none at all. In addition, sales taxes must be repaid and cannot be wiped out by filing bankruptcy.
Myth 11 — You can only file bankruptcy once
Not True. You can file for bankruptcy as many times as you like. Although, you are limited by how often you can receive a discharge. You can receive a discharge from Chapter 7 once every 8 years.
Myth 12 —
Creditors can still harass you if you file for bankruptcy
Not True. When the bankruptcy is filed, automatic protection is put onto you and all of your property instantly. Creditors are not allowed to contact you for any reason, which includes calling or even billing you. If they persist in harassing you, you do have remedies available through the Federal Bankruptcy laws.
Myth 13 — Filing bankruptcy causes more family trouble and divorce
Not True. Bankruptcy eliminates debt eliminating financial stress. Filing bankruptcy is the solution to the problem, not an additional problem. Although making the decision to file bankruptcy might be difficult one, the relief provided will lift a huge weight off of you. The absence of financial stress will give your relationship a fighting chance.
More information about bankruptcy:
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