Common Bankruptcy Myths

Common Bankruptcy Myths

Here are the top 10 bankruptcy rumors (myths) my clients have shared with me from living and working in Omaha.

Myth #1: Bankruptcy is too much stress for me to handle.

This is true, but only if you go it alone. Modern bankruptcy is essentially painless for the client.
You can be done in three to four simple steps:

• • Initial intake and meeting with attorney (1 hour)
• • Signing Meeting (1 hour)
• • Meeting with Trustee (1 hour)
• • Send a check to Trustee 1 time a month (10 Min, Chap. 13 only)

Myth #2: People who file bankruptcy are bad with their finances.

Many people end up in bankruptcy due to no fault of their own. For example, medical bills or car accidents can cause debts that are insurmountable for people to pay off. Also, losses of jobs or deaths in the family are some of the reasons people call me.

A recent study found that ½ of people who file do so because of illness or medical debt. http://www.washingtonpost.com/wp-dyn/articles/A9447-2005Feb8.html

Myth #3: The new bankruptcy laws effectively eliminated individuals from filing for personal bankruptcy.

This is simply not true. There were significant changes in the bankruptcy laws in 2005, but it is still your right under federal law to make a choice to file for bankruptcy.

Myth #4: Bankruptcy will not stop the sale of my home.

This is False. If you choose a chapter 13, bankruptcy stops the sale of your home. You will have a period of 3-5 years to get caught up on your back payments.

Myth #5: Bankruptcy will ruin my credit.

Filing for bankruptcy may actually increase your credit score in the 12 months after filing. Remaining in default and not proceeding with a bankruptcy will probably even hurt you worse. Credit scores are driven by debt ratios and getting rid of debt will be a positive on your credit report.

Myth #6: The IRS will audit me for the 4 years of taxes prior to filing.

Not true. However, you do need to have filed your tax returns for the previous 4 years, but not necessarily paid off taxes for the 4 years prior to filing for bankruptcy.

Myth #7: All Debt is gone when I file for Chapter 7 Bankruptcy.

False. Certain debts are not liquidated in bankruptcy. Student loans, child support, some taxes and other debt may not be discharged. Give me a call to talk about your particular situation.

Myth #8: I won't qualify to buy anything after filing for bankruptcy.

This is completely false. Credit card companies contact many people immediately after the close of the bankruptcy. If you need a car you will not have to borrow from the “leg-breakers.” You'll probably pay a higher interest rate, but at least you'll obtain financing from a reputable source.

Myth #9 I should never use a credit card again.

I actually recommend getting a low credit limit card following a bankruptcy to help rebuild your credit. Make sure to keep the limit low and set aside money to pay off the balance in full each month

Myth #10: Married couples must to file together.

This is not true. Although, if both plan on filing it would be more cost effective to not have to pay twice.

Have you heard other false rumors over a cup of coffee with your friends or co-workers? To find out the "truth" and receive a reality check, give me (Chris) a call for a FREE immediate consultation.