Bankruptcy Myths

13 Myths about Bankruptcy

Myth 1: The Bankruptcy reform made it almost impossible to qualify for bankruptcy.

Many people believe that the new bankruptcy laws make it difficult or impossible to pass the ‘means test’ required to qualify for bankruptcy. This is simply not the case. In some ways, the new law actually increased the benefits of filing bankruptcy.

Myth 2: It’s really hard to file for bankruptcy.

No, it’s not. In the hands of an experienced bankruptcy attorney, filing bankruptcy is easy. The decision to file may be hard, but once the decision is made the filing part is easy.

Myth 3: It’s morally wrong to file for bankruptcy.

Many people facing bankruptcy feel a strong sense of failure and embarrassment. The truth is most people file for bankruptcy after a life-changing experience, such as a divorce, the loss of a job or a serious illness. They’ve struggled to pay their bills for months and just keep falling further behind. The bankruptcy laws were created with this in mind, to make sure you have a way, if need be, to get free from the burden of debt and have a second chance at a “fresh start”.

Myth 4: If I file, my friends, family and co-workers will all know.

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 they are expressly forbidden from publishing lists of debtors who default on loans or who file for bankruptcy. While it’s true that bankruptcy is a public legal proceeding, the number of people filing is so massive that very few publications have the space, the manpower or the inclination to run all of them.

Myth 5: If My Employer Finds Out I Filed, I Could Lose My Job or Jeopardize My Future Job Prospects.

This is untrue. Federal employment laws protect you from job discrimination based on bankruptcy filing status.

Myth 6: Bankruptcy will get rid of all my debts.

Some people assume that bankruptcy is like a magic wand that will make all your debts disappear. The truth is that there are a few debts — student loans and child support arrears, for example — that are not typically dischargeable in bankruptcy.

Myth 7: I cannot get rid of back taxes through bankruptcy.

Income taxes more than 3 years old can be discharged. Under the law there are 3 or 4 qualifications that have to be met, but once these are met these taxes are gone. Please note: Filing bankruptcy does NOT get rid of withholding or sales taxes no matter how old they are.

Myth 8: I’ll never get qualify for another car loan or mortgage if I file for bankruptcy.

This is simply not true. Most people, after getting out of unmanageable debt, have been able to start over on firmer financial footing than before. After your debt is discharged, your credit score will begin to improve — about 15 points each month. Rebuilding your credit will happen faster than you realize

Myth 9: I’ll be arrested if I don’t pay my debt.

Some debt collectors and creditors may imply (or even state outright) that you will go to jail if you don’t pay. Not only are they wrong, but they may be breaking federal law by saying these things. If any representative of a bank or collection agency has threatened you with arrest, tell your attorney. Your rights may have been violated.

Myth 10: I can max out all my credit cards and then file for bankruptcy.

That’s called fraud, and bankruptcy judges can get really cranky about it. The trustee in your case will review all your purchases right before your filing. The trustee knows what to look for.

Myth 11: My credit will be ruined for 10 years after a bankruptcy.

Not true. You are getting 2 completely different concepts confused with each other. You are getting the fact that bankruptcy is reported on your credit report for 10 years mixed up with the effect that reporting will have 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.

Many people’s credit scores actually improved shortly following a bankruptcy. A substantial decrease or elimination of outstanding debt can raise your score more than a bankruptcy lowers it. Fear of potential damage to your credit rating should not deter you from filing bankruptcy if it is the right option for you.

Myth 12: I will lose everything if I file for bankruptcy.

This is the misconception that keeps people who really should file for bankruptcy from doing it. Your house, car and retirement accounts are all exempt from the bankruptcy estate. These assets cannot be liquidated or seized. In fact, filing for bankruptcy may be the best way to keep your important property and assets. Immediately upon filing, all collection actions must stop. That includes foreclosure and repossession.

Myth 13: I’m in this alone.

The truth is it is possible to file for bankruptcy on your own. You can do all the work to gather the information, fill out the forms and appear in any hearings on your own. But you don’t have to.

Don’t make the mistake of taking what you’ve heard about bankruptcy at face value. Your interests will best be served by consulting a lawyer who will tell you the truth and who will not try to convince you that bankruptcy is the way to go, unless it is the right choice in your particular circumstances. For a free consultation with a highly experienced Olathe, Kansas Bankruptcy attorney, please call 913.782.7075 or fill out the contact form in the right side bar. and we will call you promptly.