Bankruptcy is something that is tough for most people to go through. It should be treated as a last option. Sometimes, however, a fresh start is something that makes sense for people in financial distress. Many people get their information on a few tidbits of truth and lots of misinformation. Like most “monsters”, it is not really as frightening when we get to know the truth. These myths may hold you back from giving bankruptcy a look. So, here are a few myths about bankruptcy.
Everyone will know I filed for bankruptcy
While bankruptcy is a public legal proceeding, the number of people filing are so numerous that unless you are a celebrity or a major corporation, bankruptcy filings just aren’t published in newspapers. The only persons who will know about your bankruptcy filing are you and your creditors.
My credit is ruined and I’ll never get credit again
Bankruptcy will stay on your credit for up to 10 years. However, it won’t be long before you start receiving credit card offers again. Not paying your bills on time and having too much debt is a major reason for bad credit. A bankruptcy discharge gives you a chance to get rid of the heavy debt burden and get a fresh start. Once the debts are discharged in bankruptcy, you can start building up your credit again because you can finally begin to pay bills on time.
I will lose everything I own in bankruptcy
More thank 90% of bankruptcy cases filed by individuals are “no asset” cases in which you keep everything you own. That’s because bankruptcy laws provide for certain exemptions that the debtor can keep, such as your house (up to the value of your homestead exemption), your car (up to a certain value), qualified retirements accounts, etc. Also, in a Chapter 13 filing, you may be able to space out the payment of your obligations over a 3 to 5 year period.
I will never be able to own property again
Bankruptcy laws, in fact, allow you to keep your property. Outside of bankruptcy you could lose your property to creditors who may foreclose or garnish your assets. Bankruptcy laws that allow you to keep your property vary from state to state, hence, you should consult an attorney in your state to property advise you of the laws in your jurisdiction.
I have to file bankruptcy together with my spouse
It is your option to file together or separately. In most cases it makes sense for both spouses to file together because if it’s a joint obligation, the discharge of one spouse will only result in the lender going after the other spouse. In certain instances, however, it may make sense for one spouse to file but not the other. That is entirely possible and allowed by the courts.
If I have already filed for bankruptcy before, I can never be able to file again
You can get a Chapter 7 bankruptcy discharge once every 8 years. For a Chapter 13 filing, you can file more often depending on the Chapter you previously filed.
Creditors can still harass me if I file for bankruptcy
Once a bankruptcy petition is filed there is an automatic stay on all collection activities. Creditors cannot call or contact you to collect the debt. If they continue to harass you, remedies are available through the bankruptcy court.
I want to continue paying my obligation to my friend but I want to stop paying for the credit card obligations I can no longer afford. Can I pick and choose?
In bankruptcy you have to list down all your creditors. However, there’s nothing to prevent you from paying the discharged obligations to whomever you want once you are back on your feet.
I can’t file for bankruptcy if I have a job
Persons with or without a job can file for bankruptcy. Persons who are unemployed would easily qualify for Chapter 7 bankruptcy. Those with a job will qualify for a Chapter 7 or a Chapter 13 filing depending on the level of income that they have.
Medical bills can’t be discharged in bankruptcy
Almost all unsecured contract obligations, like credit card bills, personal loans, and medical bills can be discharged in bankruptcy.
There is a minimum amount of debt required to file for bankruptcy
There is no set minimum amount. If a debt is beyond your ability to pay, you may file for bankruptcy if that is the smart financial choice for you.
I can max out all my credit cards and then file for bankruptcy
The US bankruptcy trustee can review your purchases before the filing and may deny the discharge if a conclusion is reached that fraud was committed.
Only “bad” people file for bankruptcy
Most people file bankruptcy because of some major life-changing experience such as a major illness, loss of employment, or divorce. Many others have merely made bad investments and have been hit by the financial crisis. These situations cause people to struggle to pay their bills and are just unable to keep up until debts have accumulated. Bad times don’t make the person bad. Bankruptcy merely provides the relief that many hard working people need to get them out of a bad situation.
(DISCLAIMER: materials presented above are intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo and Manila. The law office website is: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at attyrey@tancinco.com).
