12 Myths About Bankruptcy
- Myth 1: I make too much money to file bankruptcy, especially Chapter 7 – Our law firm aggressively represents all clients and looks for the best result for that client. In almost three decades of practicing exclusively bankruptcy law, Ms. Shank has never not filed a bankruptcy for someone because they made too much money.
- Myth 2: Everyone will know I have filed for bankruptcy – Really, the only people that find out that you have filed a bankruptcy case are your creditors. While it is true that bankruptcy is a public legal proceeding, the numbers of people filing are so massive, very few publications have the space, the manpower or the inclination to run all of them. If you are in the military, we do not need to tell your commanding officer that you have filed a bankruptcy case. (For questions regarding bankruptcy and military security clearance, see this blog on our website).
- Myth 3: All debts are wiped out in a Chapter 7 bankruptcy – Certain kinds of debt cannot be erased. They include child support, alimony, student loans, DWIs and debts incurred as the result of fraud.
- Myth 4: I will lose everything I have – This is the misconception that keeps people who really should file for bankruptcy from filing. While bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car, money in qualified retirement plans, household goods, and clothing. Texas has very strong exemptions and allows its residents to use either a long list of exemptions provided under state law or a long list of exemptions provided under federal law. Additionally, if the property you want to keep has a mortgage on it, the chances are even better that you will be allowed to keep it if you continue to pay the mortgage. Most people will keep everything they have.
- Myth 5: I will never get credit again – Quite the contrary. It won’t be long before you are getting credit card offers again. Additionally, most of our clients report that car dealerships begin soliciting to sell them cars before we even get them discharged in a Chapter 7 case. We do warn you to watch the interest rates on those offers and be careful.
- Myth 6: If you are married, both spouses have to file for bankruptcy – Not necessarily. Whether one or both spouses file a case together is a question that is easier to answer on a case by case basis. However, in many instances, only one spouse needs to file and we have filed bankruptcy cases for only one spouse. In many instances we may still need to report the non-filing spouse’s income and examine his/her bank statements before filing for the other spouse. Even if only one spouse is planning on filing a bankruptcy case, we like to encourage our married clients to attend the free consultation that our office gives together so that you both learn of the bankruptcy process and let us answer any questions you may have. If your spouse is filing bankruptcy, you should come and ask us questions to learn how it may affect you!
- Myth 7: Only deadbeats file for bankruptcy – Most people file for bankruptcy after a life-changing experience, such as divorce, the loss of a job, an unexpected business failure or a serious illness. They have struggled to pay their bills for months and just keep falling further behind. The list of individuals who have filed bankruptcy include President Abraham Lincoln, President Harry S. Truman, John Wayne, President Thomas Jefferson, President Ulysses S. Grant, Merle Haggard, Jerry Lee Lewis, Willie Nelson, Doris Day, Judy Garland, Jerry Lewis, Burt Reynolds, Debbie Reynolds, Johnny Unitas and Walt Disney…so you are in good company!
- Myth 8: I don’t want to include certain creditors in my filing because it is important to me to repay them back someday – Just because a debt is discharged in bankruptcy does not prohibit you from repaying the obligation at some point in the future. The discharge prevents the creditor from asking you to pay it or attempting to legally force you to pay it. You can pay any creditor that you want to!
- Myth 9: Filing for bankruptcy will immediately improve my credit rating – This sounds like an ad from a less than honest attorney seeking bankruptcy clients. Any reasonable person will understand the filing a bankruptcy does nothing to immediately improve your credit rating. However, filing for relief may start the process of credit rehabilitation. Many of our clients have many derogatory comments on their credit report. After the bankruptcy court grants your discharge, we write the three credit reporting agencies, send them a copy of your discharge and ask that they change your credit report to show that those “dings” on your credit report were discharged in your bankruptcy case.
- Myth 10: You cannot get rid of taxes through bankruptcy – Income tax obligations older than three years past due, in which the tax was assessed more than 240 days prior to the filing of a bankruptcy and for which the tax return was filed more than two years prior the filing of the bankruptcy petition are generally discharged. If they are not discharged, you can pay them out over time with much less or no interest or penalty in a Chapter 13 bankruptcy case.
- Myth 11: You can only file for bankruptcy once – The truth is you can only be discharged in a Chapter 7 bankruptcy once every eight years. For a Chapter 13, you can file more often than that.
- Myth 12: I can max out all my credit cards, file for bankruptcy and never pay for the things I bought – Simply put, borrowing money without the intent to repay is called FRAUD and is not dischargeable. Bankruptcy relief is intended for the honest, but unfortunate debtor. Therefore, please do not go make unreasonable charges on your credit cards before we file your bankruptcy case.
REMEMBER, YOUR CREDITORS HAVE A LAWYER… YOU NEED ONE TOO!