Bankruptcy Myths

Myth 1: I will lose my assets if I file bankruptcy.

When you file Chapter 7 bankruptcy, a trustee is appointed to your case with the authority to seize your assets, liquidate them, and distribute the proceeds to your creditors; however, he or she can only take assets that have not been declared exempt. Every state has its own set of exemption laws.

Nearly every client who comes into my office finds that all of their assets are exempt and they are relieved to learn they won’t stand to lose anything if they file bankruptcy.

Even in the rare case that your assets are not exempt, you can still file bankruptcy without forfeiting your possessions. People with non-exempt assets can file Chapter 13 bankruptcy in order to save their property.

Also, we may be able to help you make your non-exempt assets exempt through a process called exemption planning. If you don’t engage in exemption planning properly, you can be accused of fraud. It is strongly suggested that you first consult an experienced bankruptcy attorney before you start any exemption planning.

Myth 2: Bankruptcy will destroy my credit score for 10 years.

Bankruptcy is not the end of credit – it’s a new beginning. You will receive solicitations for credit almost immediately after filing bankruptcy. The fact that you have filed for bankruptcy can remain on your credit report for 10 years.

If you currently have a decent credit score (in the 700s), bankruptcy may decrease it into the low 500s. Please be aware that this does not mean your score will stay that low for 10 years.

Even though a bankruptcy notation will remain on your credit report, I have many former clients who buy houses and cars within 2 years of filing bankruptcy.

If you have judgments, a pending foreclosure, or if you are behind on your bills, your credit score may already be low, and filing bankruptcy will likely cause little – if any – initial drop in your score. Within two years after bankruptcy, you may find yourself enjoying the best credit you’ve ever had.

Myth 3: All my debts will be discharged after I file bankruptcy.

Certain debts such as child support, most student loans, and recent tax debts will not go away even if you file bankruptcy. Some debts you may not want to eliminate.

For example, in the case of secured loans for which the lender has a lien on something you wish to keep, such as your house or car, you may decide to continue paying that creditor.

By continuing to make payments, you can keep the lender from foreclosing on their lien and thus keep your property. In some cases, the creditor may send you a reaffirmation agreement to sign.

These agreements are voluntary and officially exclude a creditor from the bankruptcy discharge. If one is mailed to my firm during your bankruptcy, I will contact you, review it with you, and discuss the pros and cons of the agreement.

Myth 4: It is hard to qualify for bankruptcy.

It is not as hard as you might think. We are able to help you find a way to file bankruptcy. If there is no way you can file under Chapter 7, you should still be eligible for relief under Chapter 13. I almost never encounter a situation in which someone who is seeking bankruptcy cannot file under Chapter 7 or 13.

Myth 5: If I file bankruptcy, it will be hard to obtain credit in the future.

This is not true. Again, you will receive solicitations for credit immediately. Believe it or not, clients who follow my program get offers from credit card companies within months after bankruptcy.

They also obtain secured loans such as car loans right away. The interest rate on these loans can be relatively high if they are obtained right after bankruptcy.

The longer you wait after bankruptcy to obtain the loan, the lower the rate is likely to be. We encourage most clients to obtain one credit card after the bankruptcy to use in case of emergencies and to rebuild credit.

Myth 6: If I file bankruptcy, others will find out.

Most people won’t find out about your bankruptcy unless you tell them or you give them access to your credit report. While bankruptcy filings are a matter of public record, they are not as accessible as you might think.

Bankruptcy cases are filed in Federal Court. Access to Federal Court cases requires one to pay for an account with the federal court system and the use of a special username and password.

Very few people have these accounts. Also, few newspapers report bankruptcies anymore, unless the person filing bankruptcy is famous or the case filing is newsworthy.