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Many people are scared to think about bankruptcy because much of
what they hear is simply NOT TRUE! However, creditors would love
for you to continue to believe some of these myth as the truth.
Let us tell you some of the most well known
MYTHS OF BANKRUPTCY and tell you what we think about these
common bankruptcy myths!
Myth
1: Under the new bankruptcy law, there's no more
bankruptcy
This is far from the truth. The truth is that
you can still do just about everything under the new laws that you
could do under the old laws. Most people seeking bankruptcy will
not notice any difference. There is more paperwork involved,
higher filing fees and more steps involved with the new laws. But
in some ways, the new laws have actually increase benefits of
filing bankruptcy. Just like with the old laws, bankruptcy is not
something you should try to do by yourself. Working with a good
bankruptcy attorney is always recommended.
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Myth
2: Everyone will know you have filed for
bankruptcy
Unless you're a prominent person or a major
corporation and the filing is picked up by the media, the chances
are very good that the only people who will know about a filing
are your creditors, well and those that you tell. It is true that
Bankruptcy is public record, the numbers of people filing are so
massive, very few publications have the space, the manpower or the
inclination to run all of them. In all likeliness, the chances of
people knowing you have filed for bankruptcy is pretty slim and
unlikely.
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Myth
3: You will loose everything you have.
Nothing could be further from the truth. The
fact is that most people who file bankruptcy don't lose anything
except their debts.
While laws vary from State to State, every state has exemptions
that protect certain kinds of property. Using Alabama as an
example, there are exemptions to protect such things as your
household goods and furnishings, tools of trade, retirement plans,
the cash value in life insurance and personal injury claims, and
more. There is even a "wildcard" exemption of $3,000 that can be
applied to whatever you want. In those situations where you have
more property than can be protected by available exemptions, there
is Chapter 13. In a Chapter 13, you keep everything you have in
exchange for paying your creditors some or all of what they are
owed.
Filing bankruptcy does not generally wipe out liens. Therefore, if
you want to keep a car, truck, home or business equipment that is
collateral for a loan, you need to keep your payments current. If
the payments are current and there's no equity (or you can exempt
the equity), you can rest assured you will be able to keep these
items.
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Myth
4: You will never be able to own anything again
This is completely false. In the future, you
can buy, own and possess whatever you want and most importantly,
what you can afford. It's known that many post bankruptcy people
have received pre-approved car loans and credit cards as soon as
they receive their discharge, and many of my Chapter 13 clients
with homes are able to refinance while in their bankruptcy. This
is not a guarantee, but it happens often. Assuming they don't run
into new credit problems after their bankruptcy, many people are
are able to qualify for a regular FHA mortgage at regular interest
rates a couple years after their discharge.
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Myth
5: You will never get credit again.
Quite the contrary. Filing bankruptcy gets rid
of debt, Getting rid of debt puts you in a position to handle more
credit, and this makes you look more attractive to would-be
lenders. Many people who have received a discharge on their
bankruptcy find themselves receiving offers for new credit cards,
car loans, etc. Many people have been able to refinance their
homes in a short time after their discharge.
It's not always a good thing, however. The offers for credit
cards, car loans, and other credit comes at a higher price.
Lenders know that once someone has filed for bankruptcy that they
have a clean slate, but that they also are not going to be able to
file for bankruptcy again for several years. If you aren't
careful, you can wind up in the same position. It's important that
you use credit wisely once you have a fresh start. Staying within
your means, paying your bills on time, and saving your money are
all things that will help you re-establish a strong financial
future.
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Myth
6: Filing bankruptcy will hurt your credit for
10 years
Not true. Two different concepts are being
confused with each other. The fact that bankruptcy is reported on
your credit report for 10 years is getting mixed up with the
effect that reporting will have on your credit. Just because
something is reported on your credit report doesn't necessarily
mean it will have a negative effect on your credit standing. In
fact, most people's credit scores improve after filing.
The fact that you need to make an appointment to see a bankruptcy
attorney, chances are your credit is most likely already in the
trash, messed up, maxed out... With a bad credit report, you
really have no credit for bankruptcy to hurt.
Furthermore, in our experience, if you haven't re-established good
credit in 2 to 4 years after you file bankruptcy, it most likely
has nothing to do with your bankruptcy filing... and it certainly
has absolutely nothing to do with the fact that your credit
history still shows and old bankruptcy.
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Myth
7: If you're married, both you and your spouse
have to file for bankruptcy
Not true. In cases where both husband and wife
have a lot of debt, it makes sense and saves money for them to
both file, but it is never a requirement under the law. In fact,
some of the cases we file where our client is married, only one
spouse files. Further, if you don't have any joint debt, your
filing will have no impact on your spouse's credit. However, if
both spouses are going to file, it makes sense to do it together
as they can both file for the price of one filing fee.
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Myth
8: It's really hard to file for bankruptcy
No, it's not, at least not with the help of an
experienced bankruptcy attorney. Although you may file bankruptcy
without the help of an attorney, an experienced attorney will
assist you in filing the proper papers and help you keep as many
of your assets as possible, while at the same time helping you to
avoid any possible charges of fraud.
The decision to file may be hard, but once the decision is made,
the filing part is easy.
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Myth
9: Only deadbeats file for bankruptcy
Not true. The vast, overwhelming majority of
the people who file bankruptcy are good, honest, hard-working
people, just like you and me, who file as a last resort. They have
spent months or years struggling to pay the bills left over from
some life-changing experience, such as a serious illness, the loss
of a job, separation or divorce, a failed business venture, or
some family emergency...or because they honestly and mistakenly
fell into debt at a young age before they knew better, before they
knew anything about budgeting or how to manage money.
Many bankruptcy filings are often because of an illness, expected
or not. A great many of those people even had health insurance and
still found themselves with enormous debt. Many of our clients
want to repay their debts... they just can't. And the credit card
companies, collection agencies, mortgage companies and other bill
collectors are willing to work with them so they can. Sound
familiar?
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Myth 10: Filing bankruptcy means you're a bad
person
Not true. There's a reason over 1,000,000
Americans file for bankruptcy relief each year, and it's not
because they're bad people. Lots of good, honest, hard-working
people fall on hard times. Sometimes life can be brutal and the
money just isn't there... it's a fact of life. Bankruptcy law were
created with this in mind to make sure you have a way, if need be,
to get free from the burden of debt so that you and your family
can have a second chance at a "fresh start".
Far from being immoral, the origins of the modern bankruptcy code
are in the Bible. Look at the "Sabbatical Year" and "Jubile Year"
and forgiveness of debts found in Leviticus 22, Deuteronomy 15 and
other sections of the Old and New Testaments. In fact, "Chapter 7"
comes from the forgiveness of debts every 7 years found in the
Sabbatical Years. In the Lord’s Prayer, the disciples are taught
to ask God to “forgive us our debts, as we also have forgiven our
debtors” (Matt. 6:12).
You can read a detailed discussion of "Bankruptcy and the Bible"
here.
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Myth 11: You can only file once for bankruptcy
protection
The truth is, you can only file for a Chapter 7
bankruptcy once every 8 years. After 8 years, if need be, you can
file a Chapter 7 again. As for filing a case under Chapter 13 of
the Bankruptcy Code, there are no such restrictions. Hopefully,
however, you will never need to file more than one bankruptcy.
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Myth 12: Even if you file for bankruptcy,
creditors will still harass you and your family
This is NOT true at all. Once you have filed
bankruptcy, the Bankruptcy Court issues an order telling all of
your creditors to leave you alone. No more phone calls... No more
collection letters... No more lawsuits... No repossessions... No
foreclosures... Nothing! This order has a name. It is called the
"automatic stay", and it is issued pursuant to 11 United States
Code, Section 362. The automatic stay prohibits your creditors
from taking any collection actions against your or your assets.
After you file bankruptcy, the creditor is not even allowed to
talk to you. In addition, the creditor must stop any collection
attempts already started. The
automatic stay is very powerful, and
puts the full weight of the United States Courts to work for you,
to make sure your creditors leave you alone. If a creditor
violates the automatic stay, you have the right to bring the
creditor before the Court for Contempt of Court, and to be
compensated accordingly. This couldn't be any more true -
Bankruptcy Court Judges do not take kindly to creditors who ignore
the automatic stay, and these Judges have been known to punish
creditors severely. Very simply, once you file for bankruptcy,
creditors must leave you alone or suffer the consequences.
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Myth 13: There is a minimum amount of debt
required to file for bankruptcy
Not true. If you really wanted to, you could
file even if you had a few hundred dollars in debt.. but why? The
court cost to file a chapter 7 would be comparable to the debt. To
some people with higher incomes, a small amount isn't worth filing
bankruptcy, however, for some people with little to no income at
all, there is no choice. However, speaking to an experienced
bankruptcy attorney who can help you decide is a good place to
start.
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Myth 14: You can't get rid of back taxes in
bankruptcy
In some cases, we're able to get rid of back
taxes. Most Federal, State, and Local income taxes more than 3
years old, inheritance taxes, and personal property taxes can all
be discharged, Under the law, there are a couple of qualifications
that have to be met first, but once they are met, these taxes are
gone. There is a major exception for business owners.. filing
bankruptcy does not get rid of withholding or sales taxes no
matter how old they are.
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