The word “bankruptcy” is scary, often avoided and rarely thought of in a positive manner. People say, and sometimes whisper, all sorts of things about bankruptcy but how do you know what is true and what isn't?
If you’re thinking about bankruptcy as an option for you, take the time to wrap your head around the facts instead of letting the myths wrap themselves around you.
10 Bankruptcy Myths to Bust
- Everyone will know I have filed for bankruptcy
- All debts are wiped out in Chapter 7 bankruptcy
- I'll lose everything I have
- I'll never get credit again
- If I'm married, we both have to file for bankruptcy
- It's really hard to file for bankruptcy
- Only deadbeats file for bankruptcy
- I don't want to include certain creditors in my filing
- I can't get rid of back taxes through bankruptcy
- I can only file for bankruptcy once
And! Bonus myth...I can max out all my credit cards and then file for bankruptcy.
Everyone will know I have filed for bankruptcy
Yes, filing for bankruptcy is a matter of public record so people can find out if they have their hearts set on it, but the media won’t be shouting it from the rooftops unless they've already been shouting about you. If you've had the media attention before, you likely will get it again, but the average person can quietly file for bankruptcy.
All debts are wiped out in Chapter 7 bankruptcy
Unfortunately, every form of debt cannot be discharged, that’s just how it is. The list of non-dischargeable debts in bankruptcy includes, but is not limited to:
- Child support
- Debts incurred based on fraud
- Government issued (or guaranteed) student loans
- Most taxes
I’ll lose everything I have
You won’t lose everything, so don’t let this common myth keep you from filing for bankruptcy if it is in your best interest to do so. Depending on the type of bankruptcy you are filing for, as well as the state you live in, the laws differ.
There are exemptions put in place to help protect you and parts of your life. Some things you may be entitled to keeping, but are not guaranteed are:
- Car (up to a certain value)
- Household goods
- Money in qualified retirement plans
I’ll never get credit again
False! You will likely never be free from credit card offers. It is important to pay close attention to the interest rates because subprime lenders will jack up those rates.
Also, keep in mind that you just filed for bankruptcy and it is probably best to go easy on the credit so you don’t get yourself into a hole again.
But, if you need credit, you can get it.
If you’re married, both spouses have to file for bankruptcy
Both spouses do not need to file for bankruptcy together but your financial situation will determine if that is in your best interest or not.
If you have many debts that are shared between the two of you, it is often better to file together; otherwise the party who did not file is on the hook for the full amount of the debt.
If only one spouse holds the vast majority of the debt, it is more than fine for just that party to file.
It’s really hard to file for bankruptcy
Contact a qualified attorney and they will guide you through the process. Don’t let the fear of the process steer you away from filing if that is what is best for you.
Only deadbeats file for bankruptcy
This is quite far from the truth. Generally life changing events cause people to file for bankruptcy and life changing events happen to all of us. Sometimes people file bankruptcy after:
- Job Loss
- Serious illness
Any of these life changing events will alter your finances in one way or another. They can leave you struggling to pay your bills on time and as time goes on, you can become buried in the debt.
I don’t want to include certain creditors in my filing
When you file for bankruptcy, you must include all of your creditors in your filing. Once your debts are discharged in bankruptcy, you are no longer obligated to pay them.
But! If you are hell bent on paying any of your creditors, you can always pay them back on your own, when you’re able.
Some people want the peace of mind of repaying their debts while others are happy to be free of the debt. Neither way is right or wrong and you should do whatever you are most comfortable with.
You can’t get rid of back taxes through bankruptcy
While in many cases this is true, there is such a thing as tax bankruptcy according to the Web Tax Mama, tax educator, Eva Rosenberg.
You can only file bankruptcy once
This is not true but time limitations do exist. For Chapter 7 bankruptcy, you can only file once every 8 years. For Chapter 13 bankruptcy cases, you have to wait 2 years and if you’re going from a Chapter 7 to a Chapter 13 case, you have to wait 4 years.
I can max out all my credit cards and then file for bankruptcy
This would be frowned upon and called fraud. Judges don’t take too kindly to fraud so try to limit your pre-filing purchases to necessities.
The trustee in your case will review everything right before filing and know what to look for.
It is important to understand the ins and outs of bankruptcy and lay any misconceptions you may have to rest. The myths above often prevent some people from filing for bankruptcy when it is really the most responsible thing to do in their situation.
The best thing do is educate yourself and contact a bankruptcy attorney to answer any questions you may have and guide you through the process.
Source:Kenneth Love, Ken Love Law, a Consumer Protection Firm