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 consumer consultation.
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 for Bankruptcy.
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 Your Bankruptcy.
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.
Myth 15: Your Bankruptcy Won’t Leave Your Credit Report.
Facts: After you file for a bankruptcy, it only stays on your credit report for up to ten years. A Chapter 7 bankruptcy remains for ten years, whereas a Chapter 13 bankruptcy will only stay on your credit report for seven years. Both will have an impact on your credit score until they’re removed, but that impact will decrease over time.
Have any questions you would like to ask our Fresno bankruptcy lawyers? Contact us at (559) 418-3022 today.
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