Don’t be Fooled – Let’s Conquer Your Debt!
The average American hears the word “bankruptcy” and immediately conjures up an image of losing all your possessions and permanently ruining your credit. Most of the information you might have heard or read is probably incorrect. The purpose of this list is to dispel some of the most common bankruptcy myths – Don’t Be Fooled!
It is important to remember that Bankruptcy is by far and away the most powerful consumer protection law you can utilize to Conquer Your Debt! We work hard with our clients to educate them and help eliminate the fictional ideas that creditors and others spread regarding filing for bankruptcy. It can be hard to discern fact from fiction when making the difficult decision to file a Chapter 7 or Chapter 13 bankruptcy case. Too many people are scared by the “myth” of bankruptcy, instead of the “truth” of bankruptcy and put up with creditor harassment far too long. Don’t be one of them!
Below are a few common misconceptions regarding bankruptcy filings and the fact behind the fiction to assist you making this difficult, but often necessary, decision:
10 Common Bankruptcy Myths
REALITY: Not True. In fact, nothing could be further from the truth. If you could file under the “old” laws, chances are you can still file under the “new” laws. The truth is that you can do almost everything under the NEW law that you could do under the OLD law. In some ways, the new law actually increased the benefits of filing bankruptcy. The NEW laws have actually made filing a more orderly and predictable process, a major benefit when strategizing over the right direction to take.
Moreover, due to a recent change in the bankruptcy exemptions, it is critically important to understand this, many clients are getting a better break under the NEW law, than they would have received under the OLD law!
Reality: Unless you are a famous person and the filing is picked up my the media, the chances are excellent that the only people who know you filed are your creditors and the people who you tell. While it’s true that filing Bankruptcy is a matter of public record, the number of filings is so enormous, that unless someone is specifically looking for your filing, there is no likelihood that anyone will know you filed.
REALITY: This is probably the most widespread and damaging myth, because it stops people from even considering the idea of filing. The fact is the overwhelming majority of clients who we assist in filing bankruptcy don’t lose anything. Most are "no asset" cases in which the debtor keeps everything they own, including their home, cars and cash in the bank!
How is this possible? It is because most real and personal property is classified as exempt, meaning that you can keep it, even after receiving a debt discharge in bankruptcy. The Bankruptcy law usually allows you to keep your home, cars, furniture, appliances, retirement savings and other items. The property that can be claimed as exempt in bankruptcy varies from state of state, however, New York recently greatly expanded these exemptions; including a new “wildcard” exemption that can be applied to any asset. Most of the Chapter 7 clients we assist LOSE NOTHING when filing. In the rare situation where there is more property than can be protected by available exemptions, there is Chapter 13. In Chapter 13, you can even keep this property by paying a Chapter 13 plan payment.
REALITY: This is a myth that continues to be perpetrated on the public. On the contrary, you will get credit again, often right after the discharge is granted! The negative impact of bankruptcy on your credit is greatly exaggerated. Bankruptcy is often no more harmful to your credit record than the defaults that preceded the bankruptcy. Remember: The bankruptcy laws are designed to provide you with a fresh financial start. Filing 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 my experience, it won’t be long before you’re getting credit card offers again.
At first, the lenders may want more money down and will want to charge you higher interest rates. However, over time, .if you are careful, keep your job, save money, and pay your bills on time, and do things that will put positive marks on your credit report, the quality of your credit will improve. Generally, in our experience, if a client has not re-established good credit in 18 to 24 months, 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 the client’s credit.
Moreover, we commonly assist our clients in variety of ways in credit restoration. One of those is obtaining a debit credit card that reports to the credit bureaus. These cards are backed by money that you deposit in a special account. As you make your various payments every month, the cardholder reports this information to the credit bureaus: this is a very powerful tool in helping you re-build your credit.
REALITY: Not true. Don’t get 2 completely different concepts confused with each other. The fact that bankruptcy is reported on your credit report for several years, does NOT necessarily mean it will have a negative effect on your credit standing for that period of time.
The truth is, by the time you need to make an appointment to see a bankruptcy attorney, your credit is usually already damaged. You have no credit for bankruptcy to hurt! Post Bankruptcy use of credit is much more important than the fact that an “old” bankruptcy lingers on your credit report.
REALITY: Not only is this NOT true, it is one of main reasons to file bankruptcy. 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 repossessions. No foreclosures. No garnishments. No method of collections is permitted while your case is under review. This order has a name. It is called the “automatic stay”; and it is issued pursuant to the Federal Bankruptcy Laws.
The automatic stay prohibits you from any and all collections activity. 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. Very simply, once you file for bankruptcy, creditors must leave you alone or suffer the consequences.
REALITY: Not true. In many cases, where both husband and wife have a lot of debt together, it makes sense and saves money for you both to both file; but it is never a requirement under the law. We have many cases where only one spouse has filed; the non-filing spouse’s credit is generally preserved. Also, the fee is the same for a one or two-spouse filing.
REALITY: It is a violation of Federal Labor laws for an employer to discriminate against an existing employee because they filed for bankruptcy. Even if you are employed in the securities or mortgage industry, generally, filing bankruptcy will not disrupt your current employment or disqualify you for future employment in these industries.
REALITY: You are required to list all of your debts in your bankruptcy schedules, even those, such as mortgages, automobile loans and other secured debts that you may still continue to pay voluntarily, on a monthly basis, after bankruptcy. The concept of leaving a credit card “out” of the bankruptcy is not acceptable. Moreover, there is a very good likelihood that the credit company will know you filed and freeze the card anyway. This would leave you with a non-usable card with a balance you would be responsible to repay! In addition, even if a debt is discharged, you still have the right to voluntarily repay any debt. The concept behind bankruptcy is full disclosure brings full discharge!
REALITY: Not true. Your immigration status is not affected in any way by filing for bankruptcy
REALITY: Some personal income tax liabilities may be discharged in either a Chapter 7 or Chapter 13, reorganization, proceeding. The criteria for discharge is complex and should be reviewed by our experienced bankruptcy attorneys. However, if your tax liability is more than 3 years old, it very well may be dischargeable.