January 18, 2018

Common Myths About Bankruptcy

1) Filing bankruptcy will destroy my credit forever.

This is probably the biggest myth people believe when they begin the process of filing bankruptcy.  There are several problems with this myth.

1)  A credit report is merely a list of fact reported by financial institutions to track and assess the risk of their lending.

2) Most people who are filing bankruptcy have exhausted all other avenues, and have taken out lots of debt to support themselves.

3) The best way to have good credit is to pay down your debt, and not miss payments.

4) After you file bankruptcy, you will be able to manage your finances more effectively, and thereby more your credit back towards good standing.

In sum, although filing bankruptcy reflects negatively on your credit report, the bankruptcy clears away the other debts to allow you to move forward living a healthy productive financial life, and in the end will allow to rebuild your credit much faster.

2) Filing bankruptcy will force me to lose everything I have

Although every state is different, all states some version of asset protection referred to as exemptions. The exemptions allow protection of certain assets defined by the individual states.

3) I can file bankruptcy on certain debts but not others.

All assets and all debts MUST be included in your bankruptcy filing.  You can repay any debt after you file bankruptcy, however there is no obligation to repay any discharged.

4) Filing bankruptcy is wrong.

The forgiveness of debt is found in many religions.  Bankruptcy exists as a means for people to begin anew.  There is nothing wrong with acknowledging the reality that you can not repay your debts.

5) Everyone will know that I filed.

The petition filed with the bankruptcy court will be available as a public record, and all creditors will receive notice of your filing.  However, not many people browse the bankruptcy filings to find out who has filed, and most of the creditors who receive notices are banks who just file away the notice.  Consider this, there are more people in the U.S. that file for bankruptcy per year than file for divorce.  Now, compare how many people you know who have filed for divorce with then number of people you know who have filed for bankruptcy.

6) Creditors will continue to harass me after I file.

When you file bankruptcy, the automatic stay goes into place.  The automatic stay is an injunction that halts the actions of your creditors.  This includes the action of contacting you.  Once your bankruptcy is finished and you receive you discharge, you are no longer legally responsible to repay the debts owed before bankruptcy.  It is illegal to collect a debt from someone who does not owe it, and therefore, it is illegal for your creditors to contact you to repay the debts discharged in the bankruptcy.

7) My boss will find out and fire me, if I file bankruptcy.

There is a specific provision in the bankruptcy law that prevents discrimination against people who have filed for bankruptcy.  You are more likely to be fired from a job if you are distracted and worried by a large financial burden.  Moreover, it is likely that creditors will begin to contact you at work if you are unable to pay your debts.  Filing bankruptcy is more likely to save your job than cause you to lose your job.  I’ve been doing bankruptcy law a long time, and I’ve never had a single client come back and say, “Hey thanks a lot, I lost my job because of you.”‘ In fact, the usual reaction after filing bankruptcy is, “Wow.  I can’t believe how good it feels to get a fresh start, and I’m surprised at how painless you made that process.  Thanks.”

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