In the months leading up to and immediately after the passage of the BAPCPA (2005), there was a massive media push to brainwash Americans to believe that they could no longer file bankruptcy. Well, I’m here to help you unlearn all the misleading information you have read or heard about bankruptcy. The legal right to file for bankruptcy is not going away. Debtor’s prison is not coming back! If you had to jail every debtor in the United States then you would have to build a prison as tall as the moon. I want to show you that there is a way out of your financial problems and to escape your crushing debt. I want to show you what your options are and how they will affect your life.
The bottom line is that there are a tremendous amount of myths about filing for bankruptcy. Many debtors are simply misinformed about their legal rights. I constantly hear from many potential clients; “I have heard that you can’t file for bankruptcy anymore since the laws changed.” The Bankruptcy Reform Act of 2005 has certainly made filing bankruptcy more of a rigorous process. The paperwork has doubled. Moreover, you basically have to document that you are broke. The bankruptcy court and the trustee no longer takes your word that you are simply broke. A debtor is now required to produce his most recent tax return and also six months worth of paycheck. A debtor also must complete a credit counseling info seminar before he filed. Finally, a debtor must also complete a debtor education course after the bankruptcy process is complete. It is important to emphasize that the credit counseling info seminar and the debtor education course are relatively simple and are not as difficult to complete as it may sound. The most significant change to the bankruptcy code is that all debtors now must complete the “means test” to determine if they are eligible to file for bankruptcy. Nonetheless, bankruptcy still remains a viable option for millions of Americans. The only way that you can determine if bankruptcy is the right choice for you is to have a consultation with an experienced bankruptcy lawyer. There is no short cut to making this call. The bottom line is that bankruptcy might work for you or it may not. Nonetheless, below are some of the most common bankruptcy myths;
Myth One: Everyone will know you have filed for bankruptcy.
Bankruptcy filings are a public record. Therefore, technically anyone could find out about your case filing. However, the number of case filings each month is so huge. It is highly unlikely that anyone would ever find out that you have filed. When is the last time you searched for bankruptcy case filings in your local neighborhood? Celebrities and publicly traded companies are of course the exception. These type of bankruptcy filings are big news and are picked up by the media. If you file for bankruptcy then it is extremely unlikely that anyone will ever know that you have filed. If you perform an internet search then you name will not appear as “filed for bankruptcy” in a google, yahoo, or any type of internet search.
Myth Two: Everything you own will be taken away from you.
The bankruptcy laws vary from state to state. However, every state has different laws that protect you. These laws are commonly known as exemptions. These exemptions protects your home, family heirlooms, retirement savings and your car. In the scenarios wherein wherein you have more equity in your property than can be protected by bankruptcy exemptions, there is a form of bankruptcy known as a chapter 13 repayment plan. In a chapter 13 you pay your creditors a negotiated percentage of what you owe over a period of time. The length of a chapter 13 plan ranges from 3 to 5 years.
Filing bankruptcy does not generally wipe out liens. Therefore, if you want to keep a car, truck, home or business equipment that is collateral for a loan, you need to keep your payments current. If the payments are current and there’s no equity (or you can exempt the equity), you can should be able to keep these items.
In summary, you will be able to keep your vehicle. I have not yet filed any type of bankruptcy wherein the Trustee has seized the debtor’s vehicle. You also will be able to retain approximately $22,000 of equity of your home. You are entitled to retain your 401K plan regardless how much is in the account. Moreover, you are entitled to keep your furniture, some money in your bank accounts, a reasonable amount of your jewelry, etc. In summary, you do not lose everything that you own if you file for bankruptcy. A debtor is entitled to use his exemptions to keep most of his property.
Myth Three: You will never be able to own anything again.
Once you file for bankruptcy then you can purchase and own whatever you want to and can afford. It is widely known that many people who have filed, have received pre‑approved car loans and credit cards as soon as they receive their discharge. Moreover, many of my clients who have filed for chapter 13 have been able to refinance their homes. This is not a guarantee but it often happens. Many debtors are are able to qualify for a regular FHA mortgage at regular interest rates only a couple years after they receive their discharge.
Myth Four: You will never get credit again.
Quite the contrary! Filing bankruptcy wipes out your debt. By wiping out massive credit card debt, this factor will greatly this enhance your financial position to handle more credit. Therefore, these factors make you look more attractive to would‑be lenders. Many people who have received a discharge often find themselves receiving offers for new credit cards, car loans, etc. Many people have also been able to refinance their homes in a short time after their discharge.
Unfortunately, any offers of new credit often come with higher interest rates. The offers for credit cards, car loans, and other credit comes at a higher price. Lenders know that once someone has filed for bankruptcy that they have a clean slate, but that they also are not going to be able to file for bankruptcy again for several years. If you aren’t careful, you can wind up in the same position. It is important that you use credit wisely once you have a fresh start. It is very important to live within your means, paying your bills on time, and saving your money are all steps that will help you re‑establish your credit.
Myth Five: Filing bankruptcy will hurt your credit for 10 years.
Not true. Two different concepts are being confused with each other. The fact that bankruptcy is reported on your credit report for 10 years is getting mixed up with the effect that reporting will have on your credit. Just because something is reported on your credit report doesn’t necessarily mean it will have a negative effect on your credit standing. In fact, most people’s credit scores improve after filing. The fact that you need to make an appointment to see a bankruptcy attorney, chances are your credit has already been “nuked.” If your credit has already been ruined then a bankruptcy can’t hurt it anymore. Furthermore, in our experience, if you haven’t re‑established good credit in two to four years after you have file bankruptcy, then it most likely has nothing to do with your bankruptcy filing.
Myth Six: If you are married then both you and your spouse have to file for bankruptcy.
Not true. In cases wherein both husband and wife significant credit card debt, then it makes sense and saves money for them to both file. However, there is no legal requirement under the law that both spouses have to file. In fact in many of the cases that I file, only one spouse files. Furthermore, if you don’t have any joint debt, then your filing will have no impact on your spouse’s credit. Thus, if both spouses are going to file then it makes sense to file it jointly becuase they only have to pay one filing fee.
Myth Seven: It is really hard to file for bankruptcy.
No, it is not at least not with the help of an experienced bankruptcy attorney. Although you may file bankruptcy without the assistance of an attorney it can turn out to be a disaster if you don’t. An experienced attorney will assist you in filing the proper papers and help you keep as many of your assets as possible. Moreover, a bankruptcy lawyer can help you to avoid any possible charges of fraud. The decision to file may be very hard to make. However, once the decision is made then the the filing part is easy.
Myth Eight: Only losers file for bankruptcy.
Not true. The vast and overwhelming majority of Americans who file for bankruptcy are good, honest, hard‑working people, just like you and me, who file as a last resort. They have spent months or years struggling to pay the bills left over from some life‑changing experience, such as a serious illness, the loss of a job, separation or divorce, a failed business venture, or some other type of family emergency. Nobody plans to file for bankruptcy. However, it is reality that life does not always “pan out” like you planned it to. People get divorced. People lose their savings in the stock market. People get down-sized. People receive terrible divorce settlements. The list goes on and on! Nobody enjoys filing for bankruptcy. However, sometimes in life you have no other choice. Most of my clients want to repay their debts but they just don’t have the financial means to. It comes down to basic math for many of my clients; do they pay for their rent and food, or do they pay their Visa and American Express bills. Get the picture, bankruptcy is about survival for most of my clients.
Myth Nine: Filing bankruptcy means you’re a bad person.
Not true. There’s a reason over one million Americans file for bankruptcy relief each year, and it’s not because they’re bad people. Many good, honest, hard‑working people fall on hard times. Sometimes life can be brutal and the money just isn’t there to get them through. Bankruptcy laws were created with this in mind to ensure that Americans have a way to be relieved from the burden of massive debt so that you and your family can have a second chance at a “fresh start”.
Far from being immoral, the origins of the modern bankruptcy code are in the Bible. Look at the “Sabbatical Year” and “Jubile Year” and forgiveness of debts found in Leviticus 22, Deuteronomy 15 and other sections of the Old and New Testaments. In fact, “Chapter 7″ comes from the forgiveness of debts every 7 years found in the Sabbatical Years. In the Lord’s Prayer, the disciples are taught to ask God to “forgive us our debts, as we also have forgiven our debtors” (Matt. 6:12).
Myth Ten: You can only file for bankruptcy protection once.
You can only file for a chapter 7 bankruptcy once every 8 years. After 8 years if you need to you can file for a chapter 7 again. As for filing a case under chapter 13 of the Bankruptcy Code, there are no such restrictions. Hopefully, however you will never need to file more than one bankruptcy.
Myth Eleven: Even if you file for bankruptcy your creditors will still harass you and your family.
This is note true at all. Once you have filed bankruptcy the bankruptcy court issues an order that advises all of your creditors to leave you alone. All collection calls must stop. You will not receive any more collection letters. All lawsuits must be immediately dismissed. This order has a name, and it is called the “automatic stay,” and it is issued pursuant to 11 United States Code, Section 362. The automatic stay prohibits your creditors from taking any collection actions against your or your assets. After you have filed bankruptcy your creditors are not even allowed to talk to you.
Myth Twelve: You can’t get wipe out back taxes in bankruptcy.
In some cases I am able to wipe out back taxes for my clients. Most federal, state, and local income taxes that are more than 3 years old, inheritance taxes, and personal property taxes can all be discharged. Under the law, there are a couple of qualifications that have to be met first, but once they are met, these taxes are are wiped out. There is a major exception for business owners; the filing bankruptcy does not eliminate withholding or sales taxes no matter how old they are. Withholding taxes are often referred to as payroll taxes. If you have a small business and if you don’t pay the payroll taxes then you can’t discharge these taxes in a bankruptcy case. Unfortunately, these type of tax debts will follow you to your grave.
Myth Thirteen: I can’t file bankruptcy because of the BAPCPA. The BAPCPA has changed the methods and legal tests by which people qualify to file bankruptcy. It is certainly much it much more difficult for people to now file. However, in most cases people are able to get the same or better relief under the new laws as they were before the BAPCPA was enacted.
Myth Fourteen: I can pick and choose what to include in my bankruptcy. You must include all of your assets and liabilities in your bankruptcy case. You can’t exclude a creditor from your bankruptcy simply because you plan to continue pay this bill. It is commendable great that you want to pay, but it is mandatory that you list each and every one of your debts. Once your case is discharged, then you can continue to pay your debts, but you are under no legal obligation to do so.
Myth Fifteen: Filing bankruptcy causes more family trouble and divorce. Bankruptcy eliminates your debt plain and simple. If you eliminate your debt then your stress will also be substantially reduced. Over one half of the divorces are caused by financial problems. Filing for bankruptcy saves many marriages. It is very hard to have a romantic marriage if you receive ten credit card collection calls at dinner time. Filing bankruptcy will take a huge weight off your shoulders and it will make your life much more livable. In summary, if your marriage is on the rocks, and if you are plagued with massive debt, then bankruptcy may give your marriage a boost. Receiving collection calls, facing foreclosure, and losing your car to the repo man is a sure road map to divorce court. Filing for bankruptcy might be the “secret weapon” to save your marriage.
