Want the Truth About Bankruptcy?

In their initial consultations with potential clients, bankruptcy lawyers often find that the people they meet with have a negative and incorrect view of bankruptcy based on hearsay and misinformation, including:

1. Myth: My family, friends, co-workers and employer will know I filed for bankruptcy.
   Truth: Unless you live in a very small town or are a celebrity or high-ranking public official, most people in your community will not know you have filed for bankruptcy without you telling them. Admittedly, bankruptcies are public legal proceedings. However, in most cases, the amount of people filing for bankruptcy in a city or county is too large to catch the attention of the local media.
2. Myth: My credit will be ruined for life following a bankruptcy.
   Truth: Many people fear that a bankruptcy will prevent them from ever getting credit again or from having a good credit rating. However, it is actually quite the opposite. In most cases, in the wake of a bankruptcy, you will begin getting credit card offers relatively quickly. The offers will usually be from lenders who charge high interest rates, but these are viable for rebuilding credit. In addition, if you need a car, you will be able to get the credit to buy one. Again, this is more than likely from a lender who charges high interest rates. In the years after bankruptcy, as long as you are financially responsible, you will be able to fully rebuild credit. This enables you to qualify for mortgages, credit cards and auto loans with lower interest rates.
3. Myth: Chapter 7 bankruptcy completely wipes away all my debt.
   Truth: While chapter 7 bankruptcy wipes away the majority of debt, you cannot eliminate some debts except under certain circumstances. These debts include student loans, child support, compensation for criminal acts, fraudulent debts and alimony.
4. Myth: My husband or wife will have to file for bankruptcy as well.
   Truth: As long as the discharged debts are only in the name of one spouse, the other spouse will not have to be part of the bankruptcy. However, if any debts involved in the bankruptcy are in both spouses’ names, the couple should file bankruptcy together. This is because, if they do not, the creditor of that debt will just seek payment from the spouse that did not file bankruptcy.
5. Myth: If I file for bankruptcy, I will have to give up all of my possessions and valuables, such as my house and car.
   Truth: People often mistakenly think that if they file for bankruptcy, the government will take all their possessions and sell them. It is true that chapter 7 bankruptcy allows for the trustee to take possession of certain items, such as a vacation home or boat. However, in most cases, this will not happen. Instead, debtors will complete the bankruptcy process without having to give up any of their possessions. Generally, as long as people continue to make mortgage or car payments, they do not have to worry about losing their car or house as a result of filing for bankruptcy. In addition, there are bankruptcy exemptions in Washington DC and bankruptcy exemptions in Maryland to help debtors avoid losing their home or automobile.
6. Myth: I cannot file for bankruptcy if I am unemployed.
   Truth: In the case of filing chapter 13 bankruptcy, a debtor must have a regular source of income, because chapter 13 is basically a payment plan. However, for those who file chapter 7 bankruptcy, there are no income requirements. Thus, even without a job, you can qualify to file chapter 7.
7. Myth: Filing for bankruptcy makes me a bad person.
   Truth: Filing for bankruptcy absolutely does not make you a bad person. Most people who file bankruptcy are good people who have unexpectedly hit a rough patch financially. In addition, in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was enacted to prevent the misuse of the bankruptcy system and ensure that only those in need received help.
8. Myth: If I file for bankruptcy, even if I want to, I cannot pay back my creditors.
   Truth: After you receive a discharge, you do not have to pay back a creditor. However, bankruptcy laws do not prohibit you from repaying creditors if you choose to do so voluntarily.
9. Myth: It is okay to max out my credit if I know I am about to file for bankruptcy.
   Truth: Maxing out your credit right before you file for bankruptcy can be considered bankruptcy fraud. Additionally, it can lead to fines in the range of $250,000 and up to five years in prison.
10. Myth: I cannot file for bankruptcy more than once.
    Truth: Not true. While it is something you should try to avoid if possible, you can file for bankruptcy more than once. In the case of chapter 7 bankruptcy, you have to wait eight years to file again.