Bankruptcy Myths



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Answered some bankruptcy myths.

Filing for bankruptcy ruins your credit for 10 years.

Not True. As with any other credit information, the fact of the bankruptcy can stay on your credit report for 7 to 10 years. (Remember, if you are considering bankruptcy it is highly likely that your credit rating has already been damaged, especially for the purpose of obtaining a home loan.) You can start rebuilding your credit, however, even before your bankruptcy is completed. Continuing to make your house or car payment on time can help you reestablish a good credit rating, as can making timely payments on a Chapter 13 plan or on any new loans.

Everyone will know you filed for bankruptcy.

Not True. The fact of your bankruptcy is a public record but unless you are a prominent official or high profile person, people aren't going to go looking.

After the recent changes to the bankruptcy law, filing bankruptcy doesn't help much.

Not True. The 2005 changes mean that a few people may no longer be able to file a Chapter 7 case, but most people are still able to get the same relief now as before the law changed. If a Chapter 7 is not available to you because of the 2005 changes, Chapter 13 may still offer you significant relief.

You are a bad person for filing bankruptcy.

Not True. Bankruptcy is a solution to help good people go through a tough financial time. It provides people with the fresh start that they deserve. Congress passed the bankruptcy laws because Congress recognized that we needed a safety net in our economic system for individuals, who have little control over large shifts in our economy or over unexpected personal developments such as job losses and medical expenses. The events of late 2008 should be making it clear to all of us that our financial health is not usually a function of whether we are good or bad persons.

You can pick and choose what to put into bankruptcy.

Not True. This myth seems especially prevalent in Florida, as we frequently have clients tell us that they do not wish to "file on" a particular item of indebtedness. You must list in your bankruptcy filing all of the debts that you owe and the property that you own. For some of those debts, such as car and home loans, we may help you "reaffirm" the debt, and it will be as if you never filed bankruptcy as far as that obligation is concerned. For debts that you do not formally reaffirm, if you feel like paying a particular creditor after the bankruptcy process has been completed, you are free to do that. But whether you intend to reaffirm or continue making payments on a debt does not affect your obligation to disclose all of your debts and property to us and to the Court.

It's hard to file for bankruptcy.

Not Necessarily True. There is a lot of paperwork involved, but having a skilled attorney makes the process much smoother. We try through my office procedures to streamline the process for you. After the case has been filed, you will probably only need to appear at the Bankruptcy Court once, for a relatively informal meeting with the Trustee for your case. We will prepare you thoroughly for that meeting, which we will attend with you.

You will never be able to own property or obtain credit again.

Not True. You actually can, through the bankruptcy, eliminate the barriers to ownership that are inherent in your current distressed financial situation. Phrased differently, without all your unsecured debt you are more likely to qualify for things like home and car loans. Historically, our clients who make enough money to buy a house are usually able to close a home purchase within two years of the completion of their bankruptcy. Assuming you have income, you will get credit card offers and be extended credit right after the completion of your bankruptcy. There are also creditors that will lend to you while you are in bankruptcy.

You will lose everything you own.

Not True. In probably 95% of the Chapter 7 cases we file on behalf of clients, nothing is lost. In virtually all of the remaining 5% of cases, our clients know going into the process that some particular piece(s) of property will be surrendered either to the Chapter 7 Trustee or to the secured creditor. In fact, one of the frequent advantages of filing bankruptcy is that you can surrender a piece of collateral to the secured creditor and be done with that debt. In contrast, if a car lender repossesses a car outside of bankruptcy, that lender will still have a claim against for borrower for the difference between the amount of the outstanding loan and the value of the repossessed car. And that difference is often quite a high dollar amount.

Both you and your spouse have to file bankruptcy together.

Not True. You can file separately and the Bankruptcy Court will not require joinder of your spouse. In most cases it makes sense for husband and wife to file together, but in some instances the spouse might not want or need to file. This is absolutely fine and definitely allowed by the Court.

You can't get rid of back taxes in bankruptcy.

It depends. We can usually tell you at the initial consultation whether your particular back taxes will be eliminated as a result of your bankruptcy filing. If Chapter 7 would not discharge/eliminate the taxes, we may be able to pay them through a Chapter 13 plan.

You can only file bankruptcy once.

Not True. You can file for bankruptcy relief more than one time if you meet certain conditions. So that we can advise you regarding the availability of bankruptcy in your particular circumstances, you must disclose any prior filings to us.

Creditors can still harass you if you file for bankruptcy.

Not True. When the bankruptcy is filed, you and your property are automatically and immediately protected from creditors. 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 Bankruptcy Court.

Filing bankruptcy causes more family trouble and divorce.

Generally Not True. Bankruptcy eliminates debt, thereby usually eliminating domestic stress. Filing bankruptcy can be a part of the solution to domestic problems. In any event, you owe it to yourself to consult with an experienced attorney to see how a bankruptcy filing can help you. You can always make the choice not to file if you believe after our consultation that you or a loved one will experience more harm than help from completing a bankruptcy.

ABOUT THE AUTHOR: Stubbs
Park Avenue Law Center will help you if you are experiencing financial difficulties. Historically, over 1 million Americans have filed for bankruptcy in each recent year, as have thousands of businesses. Given our country's recent and dramatic economic downturn, we may well see that number increase dramatically in the coming years.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.