Bankruptcy Myths

1. There’s No More Bankruptcy Under The New Law – Some creditors have told some of my clients that bankruptcy is no longer available in an effort to discourage them from seeking relief. It’s still available, as those clients found out. The truth is that you can do almost everything under the NEW law that you could do under the OLD law. In some ways, the new law actually offers more protection than was available under the old law.
2. It’s Very Difficult To File Bankruptcy Under The New Law – That is another thing that creditors has told my clients in an effort to discourage them from seeking relief. There is more paperwork involved under the new law, but attorneys are the ones that bear that burden, which is what they’re paid to do.
3. Everyone Will Know That I Filed Bankruptcy – Bankruptcy filings are public record, but you have to know where to go to find the information. So, u nless you're a prominent person, the chances are very good that the only people who will know about a filing are your creditors.
4. Even If I File For Bankruptcy, My Creditors Will Still Harass Me – Your creditors may get you to think that, but they know that they will be violating federal law if they harass you after you file bankruptcy. The protection you get comes from the injunction that is known as the “automatic stay,” and it goes into places automatically with the filing of the case. The automatic stay prohibits a creditor from attempting to collect a debt once the case has been filed.
5. All Debts Are Wiped Out In A Chapter 7 Bankruptcy – Wrong. Certain debts cannot be discharged in bankruptcy, like child support, alimony, student loans and debts that were incurred as the result of fraud or misrepresentation.
6. I’ll Never Get Credit Again – Quite the contrary. A recent study showed that 85% of people that completed bankruptcy receive unsolicited credit offers in the mail after their bankruptcy is over. Consider this: I had a receptionist who filed bankruptcy before she came to work for me, and within a year of filing bankruptcy, she and her spouse were able to buy a house and a truck. Well, if you can never get credit after filing, then how were they able to buy the house and truck? Now, just because credit is available after bankruptcy, I recommend to my clients that they go SLOW in obtaining new debt after filing bankruptcy.
7. I’ll Lose Everything I Have If I File Bankruptcy – This is a misconception that keeps many people who really relief from seeking help. My clients have not lost anything that they did not want to get rid of in a bankruptcy case. The reasons for that are: 1) most people go through bankruptcy and keep everything they have, and 2) if I can tell that my client owns something that would be a problem after we file the case, then we engage in “bankruptcy estate planning” to protect that which my client want to keep. Unfortunately, this misconception has caused some of my clients to delay contacting me, and in the meantime they made their situation worse.
8. If You Are Married, Both Spouses Have To File For Bankruptcy – Not necessarily. The thing you have to remember is that only the person who files bankruptcy gets the discharge in bankruptcy after the case is successfully completed. If one spouse has all the debt in their name, then everything may be fine. However, if the debts are in the names of both spouses, then only the spouse that files gets the discharge in bankruptcy, and the other spouse is still liable on the debts that were in both names.
9. Only Deadbeats File Bankruptcy – Easily 80% of my clients are in bankruptcy because they experienced a job loss, illness, divorce or they retired and are now on Social Security. The other 20% were just not prepared for emergencies of life, or they did get any financial education along the way. All of my clients have each said that they wish they could have had another alternative. In fact, many of my clients already transferred balances on credit cards as much as they could in an effort to handle things on their own. Most of my clients have already tapped into their home equity and retirement plan, if they had any to get to before coming to see me. From my perspective, it is best for people NOT to transfer balances on credit cards, get a home equity loan or retirement loan to pay bills. Why? Let’s look at the retirement loan/distribution option. If you clear our your retirement, then what are you going to have left when you reach retirement age? I have described some desperate measures that clients have undertaken before getting professional advice.
10. You Don’t Have To List ALL Your Debts or ALL Your Assets - Not true. As I tell all my clients, you have to put all cards on the table face up. Once everything is listed, then that’s how well fully analyze your situation to make sure that you’re fully protected. Now, you may have a debt that will continue to be paid. That’s fine in some circumstances, but only if you list it and you describe how it is being paid. In regard to things you own, you have to list them if you want to keep them.
11. It’s OK To Charge Up Credit Cards Just Before Filing Bankruptcy – Not true. Debt that you acquired at a time that you could not afford to repay it may have to be paid back even if you file bankruptcy. That applies to balance transfers, also.
12. You Can Transfer Your Property And Then File Bankruptcy – Big mistake. A transfer is any mode by which you would dispose of property, and that can be a big problem if you do it just before filing. Where I’ve seen problems is where a person has an extra car, typically older and cheaper, and they give to their family member to help them out, and they sign the title over to them just before they come to see me. Most often, we are able to protect the car if they still have the title, but once the transfer is made, it becomes a problem if you file bankruptcy. Remember, anything you do shortly before filing bankruptcy is looked at very carefully.

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