Bankruptcy Myths abound!
There are likely a number of reasons why misinformation about bankruptcy is so prevalent. Certainly, credit card companies and big banks are served by the public being misinformed about bankruptcy law, and even scared or ashamed of exploring bankruptcy as an option to get out of debt.
In an effort to help people better understand what bankruptcy is (and isn’t), we have compiled a list of The Top 13 Bankruptcy Myths. For more information and to learn how bankruptcy will affect you specifically, we encourage you to meet with an experienced bankruptcy attorney. Many offer free consultations.
The Top 13 Bankruptcy Myths
1. I will have to sell all of my belongings if I file for bankruptcy.
There is zero truth to this. If you file for bankruptcy nobody is going to make you sell all of your belongings. In fact, most people get to keep most or all of their personal belongings, assets, and property―including their house, car, and retirement accounts.
2. I will never be able to get a loan again.
Not true. After bankruptcy people are able to get loans, including car loans, mortgages, and lines of credit.
3. Filing for bankruptcy will be on my credit report forever.
A Chapter 7 bankruptcy will report on your credit report for 10 years from the date of filing. A Chapter 13 bankruptcy will report for 7 years from the date of filing.
4. I can max out my credit cards right before filing for bankruptcy and not have to pay that money back.
Incurring debt with the intent to erase it through bankruptcy is bankruptcy fraud.
Further, the U.S. Bankruptcy Code carves out exceptions to discharge. Consumer debts aggregating more than $675 to one creditor, for luxury goods or services (not necessary living expenses), made within 90-days of filing for bankruptcy are presumed nondischargeable. 11 U.S.C. §523(a)(2)(c).
5. If I file for bankruptcy, my spouse must file also.
You can file for bankruptcy without your spouse. Whether you should file without your spouse, or if the two of you would be better served filing a joint petition, depends on the specifics of your situation.
6. I make too much money to qualify for bankruptcy.
Many high-income earners are able to qualify for Chapter 7 bankruptcy.
7. Filing for bankruptcy means that I’ve lost control of my finances.
No, filing for bankruptcy means that you are taking control of your debt problem. Further, bankruptcy can actually be an opportunity to take control of your finances.
8. Bankruptcy will erase all of my debt.
Actually, bankruptcy does not erase all types of debt.
Dischargeable debts are erased through bankruptcy, including credit cards, medical bills, personal loans, and other types of debt.
Nondischargeable debts are not erased through bankruptcy and must be paid back after filing, including student loans, back spousal and child support payments, newer tax liabilities, and certain other types of debt.
9. It is better to pay back your debts than to file for bankruptcy.
Certainly, if you can reasonably pay back your debts you should. However, if you cannot reasonably pay back your debt in the next few years, then filing for bankruptcy may be the better option for you. Carrying debt forward for many years is not a wise financial decision. Though filing for bankruptcy is a serious financial decision, it is not necessarily a bad decision.
10. Bankruptcy will ruin my financial future.
Quite the opposite may be true. For many people filing for bankruptcy is a good decision for their financial future. If paying back your debts will take years, and include massive amounts of interest, or late-payment penalties, erase debts through bankruptcy is a wise financial choice. Those years of payments can be directed to savings, investments, and retirement accounts, all of which better your financial future.
11. I should borrow against my retirement account to avoid bankruptcy.
No, you should do everything possible to avoid borrowing against your retirement account. First, ERISA qualified retirement accounts, including your 401(k) and IRAs, are fully protected in bankruptcy. Second, many people who borrow against their retirement to stave off bankruptcy ultimately end up filing―but are then financially worse off for having borrowed against their retirement.
12. I am a failure if I have to file for bankruptcy.
Bankruptcy is a legal tool and a financial remedy. Filing for bankruptcy does not speak to your character, morals, ethics, or who you are as a person.
13. Bankruptcy won’t stop the creditors from trying to collect payment.
Not true―bankruptcy stops creditors in their tracks. As soon as you file for bankruptcy protection no creditor is allowed to attempt to collect payment from you. Bankruptcy puts a swift end to collection phone calls, threatening letters, wage garnishments, bank levies, lawsuits, foreclosure (at least temporarily), and repossession (at least temporarily).
Learn More About Bankruptcy
To learn more about bankruptcy, how it helps people, and how filing will affect you personally, we invite you to meet with us for a free consultation.
All of us here at the Law Offices of Barbara B. Braziel want to help you get out from under the weight of financial stress and gain financial freedom. We invite you to read about the clients we’ve helped here.
Find out more about Bankruptcy in our guide: All About Bankruptcy
We proudly serve the people of Savannah, GA and the surrounding areas, including Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Ludowici, Springfield, Pembroke, Brooklet, and Garden City.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.