A secret is a truth that is not known.
A myth is a known that is not true.
Truth about myths yields secrets unknown.
You know all these bad things you have always heard about bankruptcy? Read on.
1. "Everyone will know I have filed for bankruptcy."
Unless you're a prominent person or a major corporation and the filing is picked up by the media, the only people who will know about a bankruptcy filing are your creditors and the people whom you tell. While it's true that your bankruptcy is a matter of public record, unless someone is specifically trying to track down information on you, there is almost no likelihood that anyone will ever know you filed. However, telling someone that someone else filed bankruptcy is good gossip, just like telling 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 in our region, they don't include information about who filed bankruptcy. (And even if they did - which they don't - think about it, who would be interested in reading that stuff anyway?)
2. "I will lose everything I have."
Nothing could be further from the truth. The fact is most people who file for bankruptcy don't lose anything.
First, while laws vary from state to state, every state has exemptions that protect certain kinds of property. For example, there are exemptions to protect such things as your house, your car, your household goods and furnishings, IRAs, retirement plans, the cash value in life insurance, wages, etc. In those situations where you have more property than can be protected by available exemptions, filing under Chapter 13 allows you to keep this property by paying a portion of your debt through a Chapter 13 plan.
Second, filing for bankruptcy does not generally wipe out liens on property that you choose to retain. Therefore, if you want to keep your house, car or business equipment that serves as collateral for a loan, you need to keep paying on that debt. If you make these payments and have exemptions to cover any value above what is owed, you can rest assured you will be able to keep these items.
3. "I will never be able to own anything again."
A surprising number of people believe this, but this is completely false. In the future you can buy, own and possess whatever you can afford. In fact, most of our clients are back to having good credit within a year after the bankruptcy. How you handle credit after bankruptcy is entirely up to you, but if you follow our advice, chances are you will have good credit sooner rather than later, and most likely much sooner than you think.
4. "I will never get credit again."
Quite the contrary. Filing for bankruptcy gets rid of debt, and 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 our experience, we have seen first-hand that it won't be long before you're getting credit card offers again.
If it seems odd that banks would want to lend money to the newly bankrupt, it is no mystery to the financial community. The debt-to-income ratio of someone who has just received a bankruptcy discharge is completely reversed from what it was prior to the bankruptcy filing, since now the person no longer has any debt that they have to pay back.
"The theory is that people who have just declared bankruptcy are a good credit risk because their old debts are clean and now under the new laws they won't be able to get a new bankruptcy discharge for eight years," says John D. Penn, president of the American Bankruptcy Institute.
Bankers also defend the practice of soliciting the newly bankrupt, saying it gives them a chance to build a new credit history. "The people coming out of bankruptcy need an opportunity to get back on their feet," says Laura Fisher, a spokeswoman for the American Bankers Association, the industry's largest trade group. "If you take away the opportunity to get credit, it's like taking away the want ads from a job-seeker."
Credit card companies have long solicited bankrupt people, on a calculated risk that income from the higher interest rates and late fees paid by those who are trying to get their credit back will outweigh the losses from those who fail to make payments altogether. The fact is, since you no longer have the majority of your old debt, you have the increased ability to repay new debt - your income is freed up to pay the new creditor, who is the one you're seeking to get the credit from. See Newly Bankrupt Raking In Piles of Credit Offers in News.
Over time, if you are careful, keep paying your bills, and do things that will put good marks on your credit report, the quality of your credit will get better and better. Generally, in our experience, most clients are able to re-establish good credit again in the year following the bankruptcy, sufficient to finance a new car loan or even a new home mortgage.
5. "Filing bankruptcy will hurt my credit for 10 years."
Not true. These are two completely different concepts. The fact that bankruptcy is reported on your credit report for between 7 to10 years is being confused 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.
First, understand that by the time you need to make an appointment to see an attorney for your debt situation, your credit is probably already messed up or maxed out . . . or both. This being the case, bankruptcy cannot hurt your credit more than it already is.
The truth of the matter is that bankruptcy has very little to do with the formulas that the credit reporting industry use to affect your credit score. In many cases, because you no longer have the outstanding debt to pay, filing bankruptcy actually raises your credit score right away.
Most clients are surprised to learn that filing for bankruptcy can actually help them re-build their credit. Bankruptcy gets rid of debt, and getting rid of debt puts you in a better position to handle new credit. Therefore, bankruptcy can often be the first step in the process of re-building your credit.
Furthermore, as mentioned above, in our experience, if you have not re-established good credit in the one year after you file bankruptcy, most likely it has nothing to do with the fact that you once upon a time had filed bankruptcy, and it certainly has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy from the past.
6. "If I am married, both I and my spouse have to file bankruptcy."
Not true. In many 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. A vast number of our cases are where only one spouse files. The good news is only if it makes sense for both spouses to file together, that they can do so for generally the same price as one of them filing.
7. "It's really hard to file for bankruptcy."
It's not. When you hire an experienced bankruptcy attorney who can counsel and prepare you, it gets much easier. The decision to file may be a tough one, but once the decision is made, your attorney can essentially handle the rest. That's what we do here at The Cohen Law Firm.
8. "Only deadbeats file for bankruptcy."
Not true. Most of the people who file for bankruptcy are good, honest, hard-working people . . . just like you and me. They file as a last resort after months or years struggling to pay the bills that were left over from some life-changing experience, such as a divorce, the loss of a job, a failed business venture, a serious illness, or some family emergency. Or it could have been 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.
Thomas Jefferson, our country's third president, was also a noted statesman, diplomat, architect, author, inventor and farmer. He is widely acknowledged as a man of great genius and quite possibly the most intelligent of all U.S. Presidents. He was a man who gave vision to this country as one of its founding forefathers and leaders.
Why, you may ask, do I bring up Thomas Jefferson? It is for this reason: he was almost constantly in debt. Large debt. Mr. Jefferson filed several bankruptcies in his lifetime, and his debt was huge in comparison to most individual's bankruptcies today.
The point is this: bankruptcy is nothing to be ashamed of. If a man with the credentials, aptitude and intelligence of Thomas Jefferson can repeatedly find himself in situations that bankruptcy is called upon to solve, then it certainly does not reflect negatively on you if you find yourself in a situation in which you need the assistance that bankruptcy can provide.
9. "Filing for bankruptcy means I am a bad person."
Sorry, wrong again. There's a reason over 2 million Americans filed for bankruptcy protection last year . . . 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 system was 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."
10. "Even if I file, creditors will still harass me and my family."
Absolutely not. In fact, nothing could be further from the truth. The minute you file for 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 Title 11 of the United States Code, section 362. The automatic stay protects you from any and all collection actions. 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, including a recently filed lawsuit.
The automatic stay is very powerful, and puts the full weight of the United States judicial system 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. 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.
11. "If I file, it will add to the burden I am already facing in my marriage and might result in divorce."
This is NOT true. Usually, it's just the opposite. Filing for bankruptcy is not the problem. The problem is not being able to pay your bills. All good, honest, hard-working people feel a strong need to pay their bills, and not being able to do so causes them to feel tremendous stress. Unless you do something to relieve this stress, it can quickly build to the breaking point - the marriage breaking point.
Bankruptcy is designed to get you out from under the burden of debt, 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 you both are enduring 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.
The number one reason for divorce in the United States is money troubles. Just imagine if you had no more money troubles. It can happen.
12. "I can't get rid of taxes through bankruptcy."
We get rid of old income tax debt for our clients all the time. By "old" we mean income taxes that are more than 3 years old. Under the law there are several other qualifications which must be met, but once these are satisfied the tax debt is gone forever. There are strictly interpreted exceptions to this rule and it is important for you to meet with an attorney to determine if your taxes can be dischargeable in a bankruptcy.
13. "I can only file for bankruptcy once."
False. Under the new bankruptcy law, you can only file for Chapter 7 once every eight years. The rules relating to filing under Chapter 13 are more complicated, but sufficed to say that often if a Chapter 7 case cannot be filed because of a time restriction, filing a Chapter 13 case is usually a possibility.
14. "I can pick and choose which debts and property to list in my bankruptcy."
Sorry, but no. Doing so would be against the law. Under the law, when you file for bankruptcy you have to list all your property and all your debts. Most people want to leave out a debt because it is their intent to keep paying on it. The good news is that you can achieve that goal, even though you have to list the debt. If you want to keep paying on a debt after bankruptcy you can. After bankruptcy you can go back and pay anybody you want. A formal reaffirmation may also be considered, which essentially places you in the same position vis-ā-vis the creditor as you were before you filed bankruptcy. We can go over these options with you.
In fact, after you file bankruptcy there are some debts you have to keep paying on. For instance, if you have a car or house loan, even though you list the debt in your bankruptcy, if you want to keep the car or house you have to keep paying on the debt. As long as you stay current on the loan and keep the property insured you are protected under the law and you get to keep the property.