Myth 1: Under the New Bankruptcy Law, There’s No More Bankruptcy
Myth 2: Everyone Will Know You Have Filed for Bankruptcy
Myth 3: You Will Lose Everything You Have
Myth 4: You Will Never Be Able to Own Anything Again
Myth 5: You Will Never Get Credit Again
Myth 6: Filing Bankruptcy Will Hurt Your Credit for 10 Years
Myth 7: If You’re Married, Both You and Your Spouse Have to File for Bankruptcy
Myth 8: It’s Really Hard to File for Bankruptcy
Myth 9: Only Deadbeats File for Bankruptcy
Myth 10: Filing Bankruptcy Means You’re a Bad Person
Myth 11: Even If You File for Bankruptcy, Creditors Will Still Harass You and Your Family
Myth 12: If You File for Bankruptcy, It May Cause More Family Troubles and May Even Lead to Divorce
Myth 13: You Can’t Get Rid of Back Taxes in Bankruptcy
Myth 14: You Can Only File Once for Bankruptcy Protection
Myth 15: There is a Minimum Amount of Debt Required to File for Bankruptcy

Myth 1: Under the New Bankruptcy Law, There’s No More Bankruptcy

We’ve heard a lot of misinformation about this. Some of the worst falsehoods are:

• The Bankruptcy laws have been repealed by Congress.
• If you didn’t file for bankruptcy before October 17, 2005, you are no longer allowed to file.
• Only corporations can now file for bankruptcy.
• You cannot discharge credit card bills under the new Bankruptcy laws.
• You cannot discharge medical bills under the new Bankruptcy laws.
• You can only keep one car or one truck if you file under the new Bankruptcy laws.
• You will have to give up all of your vehicles if your file for bankruptcy.
• The IRS will audit all of your prior tax returns if you file for bankruptcy.
• You can only have one TV and one VCR if you file for bankruptcy and if you have a DVD it will be taken by the Trustee.
• You can no longer stop a foreclosure by filing for bankruptcy.
• If you file for bankruptcy, all of your bank records and tax records will be audited.
• An FBI agent will come to the home of every debtor and will take photographs of everything.
• Before you can file for bankruptcy, you must pass a written test. Likewise, you must pass another test to get out of bankruptcy.
• Before you can complete your bankruptcy case, you must pass a lie detector test.
• After you file for bankruptcy, you will never be entitled to another tax refund.

ALL OF THESE ARE COMPLETELY, TOTALLY, AND UTTERLY FALSE!

In fact, nothing could be further from the truth. The truth is that you can do almost everything under the NEW law that you could do under the OLD law. And we’re busier than ever. In some ways, the new law actually increased the benefits of filing bankruptcy.

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 and the people who you tell. While it’s true that your bankruptcy is a matter of public record, so many people have filed�about 2 million during 2005 alone�unless someone is specifically trying to track down information on you, there is almost no likelihood that anyone will even know you filed. However, telling someone that someone else filed bankruptcy is good gossip…just like telling a someone you heard so-and-so is getting a divorce. So, if you don’t want everyone you know to know you filed bankruptcy, you need to keep the information to yourself. As for newspapers, my experience is that very few papers include information about private individuals who filed bankruptcy, and even if they did…who would be interested enough to read that stuff?

Myth 3: You Will Lose 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.

First, while laws vary from State to State, every State has exemptions that protect certain kinds of property. Using Maryland as an example, there are exemptions to protect such things as your household goods and furnishings, IRAs, retirement plans, the cash value in life insurance and personal injury claims. There is even a “wildcard” exemption of $11,000 per person that can be applied to whatever you want. Most states even have “homestead exemptions,” which protect some or all of the equity in your home. In those rarer 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.

Myth 4: You Will Never Be Able to Own Anything Again

A surprising number of people believe this….but it is completely false. In the future, you can buy, own and possess whatever you can afford. Virtually all of my clients receive 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. Assuming they don’t run into new credit problems after their bankruptcy, many of my clients are able to qualify for a regular FHA mortgage at regular interest rates two years after their discharge.

And if you want to check out what some very famous people did after they filed for bankruptcy (and, yes, they owned a whole lot of things afterwards), look at the list of Famous People Who Filed Bankruptcy.

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. In my clients’ experience, once you get your bankruptcy discharge, you will be deluged with offers for new credit cards, car loans, etc. I have had many clients refinance their homes a couple of weeks after they get their discharges, or even in the middle of their Chapter 13 cases.

This isn’t always a good thing. I don’t want you to get right back in debt again. At first, the would-be lenders will want more money down and will want to charge you higher interest rates. However, over time, if you are careful, and keep your job, and start saving money, and pay your bills, and do things that will put good marks on your credit report, your credit scores will get higher, and the terms you can get will improve. In my experience, if a client has not re-established good credit in 2 to 4 years�sufficient to buy a car or even a house�it’s not because they filed bankruptcy. It generally means that something else has happened after the bankruptcy to hurt their credit.

Myth 6: Filing Bankruptcy Will Hurt Your Credit for 10 Years

Not true. Here, two completely 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 does NOT necessarily mean it will have a negative effect on your credit standing. In fact, most people’s credit score improves after they file!

Here’s why. By the time you need to make an appointment to see a bankruptcy attorney, your credit is usually pretty trashed, messed up and maxed out. This being the case, you have no credit for bankruptcy to hurt. As I usually tell people, “You can’t wet a river.”

Furthermore, as I mentioned above, in my experience if you have not re-established good credit in 2 to 4 years after you file bankruptcy, most likely it has nothing to do with the fact that you filed bankruptcy…and it certainly has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy.

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. In fact, most of the cases we file where our client is married, only one spouse files. And if you don’t have any joint debt, your filing will have no impact on your spouse’s credit.

Myth 8: It’s Really Hard to File for Bankruptcy

No, it’s not….at least not in the hands of an experienced bankruptcy attorney. In the hands of an experienced bankruptcy attorney, filing bankruptcy is easy. The decision to file may be hard, but once the decision is made, the filing part is easy.

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.

A recent study by Professor Elizabeth Warren of Harvard Law School found that over half of all bankruptcies are related to illness, and 75% of those people who end up filing because of medical bills have health insurance.

In my experience, almost all of my clients want to repay their debts…they just can’t. And the credit card companies, collection agencies, mortgage companies and other bill collectors aren’t willing to work with them so that they can.

Myth 10: Filing Bankruptcy Means You’re a Bad Person

Not true. There’s a reason over 2,000,000 Americans filed for bankruptcy relief in 2005, and it’s not because they’re bad people. Lots of good, honest, hard-working people fall on hard times. Let’s face it�life can be brutal, and sometimes the money’s just not there. The 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).

And morality is a two-way street. What about the obscene interest rates being charged for credit cards, the one-sided loan terms required by lenders, or the abusive and illegal tactics followed by many collection agencies?

You can read a detailed discussion of “Bankruptcy and the Bible” by clicking here.

Myth 11: Even If You File for Bankruptcy, Creditors Will Still Harass You and Your Family

This is NOT true. In fact, nothing could be further from the truth. The minute you file 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 garnishments. No repossessions. No foreclosures. Nothing. This order has a name. It is called the “Automatic Stay”; and it is issued pursuant to Title 11 of the United States Code, Section 362. The Automatic Stay prohibits your creditors from taking any collection actions against you or your assets. Once you file bankruptcy, the creditor is not even allowed to talk to you or send you letters. 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 is not a hollow right�Bankruptcy Court Judges do not take kindly to creditors who ignore their Order�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.
Myth 12: If You File for Bankruptcy, It May Cause More Family Troubles and May Even Lead to Divorce

This is NOT true. Usually, it works just the opposite. Filing bankruptcy is not the problem. The problem is not being able to pay your bills. All good, honest, hard-working people feel a strong desire to pay their bills, and not being able to do so causes them tremendous stress. Unless you do something to relieve this stress, it can build to the breaking point….and in some cases, the breaking point of your marriage. Bankruptcy is designed to get you out from under the heavy weight of debt and collectors, to protect your property and to lower your stress level. If your experience is like that of other couples, you will find that filing bankruptcy and lowering the stress level can be a crucial first step in bringing the love and caring back into your relationship….which, in turn, gives your marriage a fighting chance.

Myth 13: You Can’t Get Rid of Back Taxes In Bankruptcy

We have gotten rid of millions of dollars of back taxes for our clients. 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 several qualifications that have to be met, but once these are met, these taxes are gone. There is one major exception for business owners: Filing bankruptcy does NOT get rid of withholding or sales taxes, no matter how old they are.

Myth 14: 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; you can even file a “Chapter 20,” which is a Chapter 7 followed in short order by a new Chapter 13. Hopefully, however, you will never need to file more than one bankruptcy.

Myth 15: There is a Minimum Amount of Debt Required to File Bankruptcy

Fact: Theoretically you could file bankruptcy even if you only have $10 in debt, although you would need to have your head examined, since it costs $299 in Court costs to file a Chapter 7. But we have had clients with little or no income who have filed for amounts that would be very manageable for those with higher income, but are completely unmanageable for these clients. There is no minimum.

by Brett Weiss, Maryland Bankruptcy Attorney