Debunking Bankruptcy Myths
Our Fresno Bankruptcy Lawyers Reveal the Truth
Bankruptcy can be a very confusing area of law to navigate, but we are
here to clear up common myths. Learn the difference between what is fact
and what is fiction with help from Fear Waddell, P.C.’s Fresno bankruptcy lawyers.
Contact us today!
Myth 1: Under the NEW Bankruptcy Law, There’s No More Bankruptcy
Fact: This is not true. Some also believe you cannot file Chapter 7 or you have
to make payments, but this is also false. The new law requires you to
do a little more, but most people will still be able to file for a Chapter
7 bankruptcy under the new law. The truth is that you can do almost everything
under the NEW law that you could do under the OLD law.
Myth 2: Everyone Will Know You Have Filed For Bankruptcy.
Facts: Unless you’re a prominent person or a major corporation and the
filing is picked up by the media, the chances are very good that the only
people who will know about a filing are your creditors and the people
who you tell. While it’s true that your bankruptcy is a matter of
public record, the number of filings is so massive, that unless someone
is specifically trying to track down information on you, there is almost
no likelihood that anyone will even know you filed.
Myth 3: You Will Lose Everything You Have.
Facts: Nothing could be further from the truth. Most people who file bankruptcy
don’t lose anything. While laws vary from State to State, every
State has exemptions that protect certain kinds of property. In California
for example, there are exemptions that can be used to protect your household
goods and personal effects, your car, your house, IRAs retirement plans,
wages, and personal injury claims, just to name a few.
There is even a “wildcard” exemption that can be used to protect
up to $20,000 in any type of asset. And if there is property that is not
exempt, you may still be able to keep the property and wipe out the debts
by doing a Chapter 13 plan and paying creditors some of what they owe.
It is important to remember that filing bankruptcy does not generally
wipe out liens.
So if you want to keep a car, truck, home or business equipment that serves
as collateral for a loan, you need to keep paying on the debt. You may
also need to reaffirm the debt, depending on your particular situation.
If you have questions about how this works, feel free to set up a free
Myth 4: You Will Never Be Able to Own Anything Again.
Facts: This is false. A bankruptcy filing does not prohibit you from owning property.
In the future, you can buy, own and possess whatever you can afford. In
fact, by getting rid of your debt, it may be easier for your to hold property
in the future without it being seized by creditors.
Myth 5: You Will Never Get Credit Again.
Facts: Quite the contrary. Filing bankruptcy gets rid of debt, and getting rid
of debt puts you in a position to handle more credit and makes you look
more attractive to would-be lenders. In my experience, unfortunately,
it won’t be long before you’re getting credit card offers
again. I say “unfortunately” because I don’t want you
to get right back in debt again.
At first, the would-be lenders will want more money down and will want
to charge you higher interest rates. However, over time if you are careful,
and keep your job, and start saving money, and pay your bills, and do
things that will put good marks on your credit report, the quality of
your credit will get better and better.
Myth 6: Filing Bankruptcy Will Hurt Your Credit For 10 Years.
Facts: This is not true. This myth confuses two concepts:
- When you file bankruptcy, it can stay on your credit report for up to 10 years.
- The effect a bankruptcy has on your “credit.”
Just because something is reported on your credit report does NOT necessarily
mean it will have a negative effect on your credit standing.
First, by the time you need to make an appointment to see a bankruptcy
attorney, your credit is already messed up or maxed out or both. Most
debtors we help have a very low credit score anyway. Bankruptcy helps
them clear off their old debt so that they can start rebuilding their credit.
Myth 7: If You’re Married, Both You & Your Spouse Have to File
Facts: Not true. In many cases, where both husband and wife have a lot of debt,
it makes sense and saves money for them to both file. But it is never
a requirement under the law. We have many cases where only one spouse
has filed. The good news is that generally, if it makes sense for both
spouses to file together they can both file for the price of one filing.
Myth 8: It’s Really Hard to File for Bankruptcy.
Facts: This myth is only true if you are trying to do it yourself. Especially
under the NEW law, there are many requirements that did not exist previously
and most bankruptcy petitions filed by individuals for themselves will
probably be dismissed, or worse, the individual will lose a significant
asset (home, car, retirement funds). However, a competent bankruptcy attorney
who understands the NEW law can walk you through the process so that your
part is not difficult and will help you avoid losing significant assets
through the bankruptcy process.
Myth 9: Only Deadbeats File for Bankruptcy.
Facts: This is not true. One study found that 80% of people filing bankruptcy
were forced to do so as a result of either job loss, a recent divorce
or medical bills. Most of the people who file bankruptcy are good, honest,
hard-working people, just like you and me, who file as a last resort.
Myth 10: Filing Bankruptcy Means You’re a Bad Person.
Facts: Not true. Bankruptcy was created to give people who have fallen on hard
times a “fresh start.” Even those who are fiscally responsible
can find themselves struggling with debt.
Myth 11: Even if You File for Bankruptcy, Creditors Will Still Harass You
& Your Family.
Facts: This is NOT true. In fact, nothing could be further from the truth. The
minute you file bankruptcy, the Bankruptcy Court issues an order telling
all of your creditors to leave you alone. No more phone calls. No more
collection letters. No more lawsuits. No repossessions. No foreclosures.
Nothing. This order has a name. It is called the “automatic stay”;
and it is issued pursuant to 11 United States Code, Section 362.
The automatic stay prohibits you from any and all collections actions.
After you file bankruptcy, the creditor is not even allowed to talk to
you. In addition, the creditor must stop any collection attempts already
started. The automatic stay is very powerful, and puts the full weight
of the United States Courts to work for you, to make sure your creditors
leave you alone.
If a creditor violates the automatic stay, you have the right to bring
the creditor before the Court for Contempt of Court, and to be compensated
accordingly. Believe me, Bankruptcy Court Judges do not take kindly to
creditors who ignore the automatic stay, and these Judges have been known
to punish creditors severely. Very simply, once you file for bankruptcy,
creditors must leave you alone or suffer the consequences.
Myth 12: You Can’t Get Rid of Back Taxes Through Bankruptcy.
Facts: You can get rid of some old taxes through bankruptcy. By “old,”
we mean income taxes more than 3 years old. Under the law, there are 3
or 4 qualifications that have to be met, but once these are met, these
taxes can be wiped out. Please note: Filing bankruptcy does NOT get rid
of withholding or sales taxes, no matter how old they are.
Myth 13: You Can Pick & Choose Which Debts & Property to List in
Facts: This may be the most prevalent myth out there. You can’t. You have
to list everything for your bankruptcy. Doing otherwise would be against
the law. Under the law, when you file bankruptcy you have to list all
your property and all your debts. Most people want to leave out a debt
because it is their intent to keep paying on it. If you want to keep paying
on a debt after bankruptcy, you can, even though you list the debt.
Myth 14: Under the NEW Law, You Cannot Discharge Credit Card Debt.
Facts: Nothing could be further from the truth. You can still discharge credit
card debt. I’m not sure how this myth got started, because nothing
in the new law even suggests that credit card debt cannot be discharged.
The fact is that all credit card debt is dischargeable, except for a few
very narrow circumstances, all of which are essentially the same as the
old law. If you could discharge credit card debt under the old law, you
will almost assuredly be able to discharge it under the new law. By the
way, when we say “discharge” we mean that you no longer owe
the debt, i.e., you are discharged from your obligation to pay.
Have any questions you would like to ask our Fresno bankruptcy lawyers?
Call (559) 418-3022 or fill out a
free case evaluation!