It's extremely hard as a lay person to decipher all the information you hear about bankruptcy from friends, newspaper articles, television news reports and perhaps even from attorneys who don't have a working knowledge of bankruptcy law. This section is provided as a means to decipher the misinformation that may have filtered its way down to you. This information is being provided to help you understand what you creditors don't want you to understand.
1. THE NEW BANKRUPTCY LAW ENACTED BY CONGRESS DOESN'T ALLOW THE PROTECTIONS TO INDIVIDUALS, AS DID THE PREVIOUS LAW.
This is completely false. Make no mistake, Credit card companies and Banks lobbied Congress long and hard and spent millions of dollars doing so in an effort to further increase their ever increasing profits and in essence to further hurt you the consumer. In reality, a recent study conducted by NACBA (National Association of Consumer Bankruptcy Attorneys) on over 60,000 consumers referred to credit counseling revealed that the new law is not working as intended. In fact, the study revealed that only 3.3% in the study group were eligible for a debt management plan and could avoid a bankruptcy.
In short, most everyone that was eligible for bankruptcy prior to the law change of October 17, 2005 is still eligible now. Additionally, almost all of the protections and benefits of bankruptcy are still available to filers. You can read our brief synopsis of the new law to see how it may impact you.
2. EVERYONE WILL KNOW THAT YOU HAVE FILED FOR BANKRUPCY.
Unless you are a prominent person or a major corporation and the media picks up the filing, the chances are very good that the only people who will know about your filing are your creditors and anyone you decide to tell. While it is true that bankruptcy filing 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 know that you have filed. As for newspapers, our experience is that because of the large number of filings there are so few publications that have the space, the manpower or the interest in running all the names; and think about it, even if they did who would be interested enough to read that stuff.
3. YOU WILL LOSE EVERYTHING YOU HAVE
This is the common misconception that keeps people who really need to file bankruptcy from filing. Nothing could be further from the truth. The fact is that most people don't lose anything at all.
First, while laws vary from State to State, every State has exemptions that protect a person's interest property. Additionally, the Federal exemptions provided in the Bankruptcy Code offer the same protections. There are exemptions to protect equity in your home, equity in cars, furniture, clothing, jewelry, cash value of life insurance policies and personal injury claims and others. In the event that you have more property than you can protect with your exemptions, there is the option of filing a Chapter 13. In a Chapter 13, you are a 'debtor in possession", which means that you retain all of your property in exchange for paying your unsecured creditors some percentage of what they are owed.
Second, filing bankruptcy does not generally wipe out liens. Therefore, if you wish to retain a car, truck, home or business equipment that serves as collateral for a loan, you need to continue to make regular payments on the loan. If you make these payments and have the required exemptions to cover any value in the item above what is owed on it; you can be assured that you can retain these items.
4. YOU WILL NEVER BE ABLE TO OWN ANYTHING AGAIN
It is surprising how many people believe this, but it is completely false. In the future, you can buy, own or possess whatever you can afford.
5. YOU WILL NEVER GET CREDIT AGAIN
Quite to the contrary. By filing for bankruptcy and ultimately receiving your discharge from your debts, you become debt free, which puts you in a position to handle more credit and thus makes you more attractive to would be lenders. It has been my experience that soon after discharge, my clients are inundated with credit card applications. The creditors know two things, one you don't have any other debt and two; you can't receive another Chapter 7 discharge for 8 years.
Not that I would recommend running out and getting right back into debt again. However, you will be offered credit At first in may be in the form of secured credit cards or cards with very high interest rates, however if you are careful, start saving money and pay your bills in a timely manner and do things that put good marks on your credit report, the quality of your credit will get better and better. Generally, if you have not re-established good credit within 2 to 4 years of your bankruptcy, sufficient to buy a car or house; it's not because of your bankruptcy. It's generally because something else happened after your bankruptcy to hurt your credit.
6. IF YOU'RE MARRIED, BOTH YOU AND YOUR SPOUSE HAVE TO FILE BANKRUPTCY
Not true. There is no requirement under the law for joint filings. Often times, one spouse may have very poor credit, while the other spouse has very good credit. This is a good example of a case where filing only for the spouse with bad credit can ultimately benefit both spouses in the long run. The spouse with bad credit is able to clean up his or her credit and discharge debt. This will free up household income and potentially make it easier to purchase a home jointly in the future.
Sometimes it makes more sense to file jointly. Especially, in the case where there is a lot of joint debt. The good news is that you can file a joint case for the same price as the price for one filing.
7. FILING BANKRUPTCY WILL HURT YOUR CREDIT FOR 10 YEARS
Not true. It is true that a bankruptcy filing is reported on your credit report for 10 years. However, this does not mean that you will have bad credit for 10 years. First of all, let's be clear about one thing, by the time you have made an appointment to see a bankruptcy attorney, your credit is already bad. That being the case, in reality how much more can a bankruptcy hurt.
The truth is your credit scores will reflect what you do after the filing of a bankruptcy case. If you file a Chapter 7, your scores will reflect what you do with the credit that either survives the bankruptcy, ie. car payments, mortgage payments, and new credit that you receive. If you make timely monthly payments with these creditors your credit scores will continually get better.
If you file a Chapter 13, you most likely will have a mortgage payment or car payments that you will resume making in your chapter 13 plan, as well as, have a Chapter 13 Trustee payment to make. If you are able to make these post-petition payments in a timely manner, your credit scores will increase even while you are technically still involved in your bankruptcy case. In fact, we many times are able to find companies that will refinance our clients out of their Chapter 13 case after as little as 6 months of timely payments being made to their Mortgage Company and/or Trustee.
8. IT' REALLY HARD TO FILE FOR BANKRUPTCY
No it's not. While the decision to file may be a difficult one, in the hands of an experienced bankruptcy attorney the filing is easy.
9. ONLY DEADBEATS FILE FOR BANKRUPTCY
Not True. The overwhelming majority of people who file for bankruptcy are hard working Americans just like you and me. A recent study performed by Elizabeth Warren of Harvard University illustrated that most bankruptcy filings are caused by a job loss, medical expenses, a divorce or some combination of these causes.
10. YOU CAN ONLY FILE ONCE FOR BANKRUPTCY PROTECTION
The truth is that you can only file for Chapter 7 protection once every 8 years. But after 8 years, if need be, you can file again. As for filing a case under Chapter 13, there is no such restriction. Hopefully, you will never need to file more than one bankruptcy.