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The TOP TEN Bankruptcy Myths

Westbrook Law Firm, PLLC can help you separate the facts from the myths regarding bankruptcy.

Are you worried about the consequences of bankruptcy? Don’t worry. Most of your concerns are probably based on old myths about bankruptcy. Creditors work hard to promote these misconceptions.

In reality, there are usually more advantages than disadvantages when filing for personal bankruptcy.

MYTH #1: You Will Never Get Credit Again if You File For Bankruptcy.  

Bankruptcy myths: You Will Never Get Credit Again if You File For Bankruptcy. Not true.  Although a bankruptcy can stay on your credit report for up 10 years from the date of filing, you can start rebuilding your credit as soon as your bankruptcy is closed and discharged.  Many of our clients purchase new homes, vehicles, and even qualify for credit cards a few months after the bankruptcy is concluded.  In fact, many creditors will start offering credit right after the discharge.  With proper planning and counseling, you can get new credit much sooner than expected.

MYTH #2: Lenders Will Ignore You if You File for Bankruptcy.

False.  After Congress passed the new bankruptcy laws in 2005, much of the stigma associated with bankruptcy vanished.  Many lenders understand the problems with our economy and the affect of this crisis on consumers.  So many will offer credit to those affected by bankruptcy.  While interest rates may be higher, you can still get credit, despite a bankruptcy filing.

MYTH #3: People Who File for Bankruptcy Are Stealing and May Go to Jail.

Bankruptcy myths: People Who File for Bankruptcy Are Stealing and May Go to Jail.Totally False.  Each year, over one million people choose to file for bankruptcy, whether through Chapter 7 or Chapter 13.  These are good people, just like you, who are in difficult financial situations.

While there is always a bad seed in every group, the majority of bankruptcy filers are in desperate need of relief and turn to the advantages of bankruptcy to assist them through this difficult time. Whether you lost your job and can’t pay your credit cards, or became ill or injured and incurred significant medical bills, you are not a bad person for choosing bankruptcy relief.

Congress created the federal bankruptcy laws to assist hard working people eliminate their debts and move on with their lives.  If you are facing this type of hardship, our Firm can help.

MYTH #4: Filing Bankruptcy Is Very Difficult and Could Result in an Audit.

Not in most cases.  Filing bankruptcy is much easier than in the past.  While the law requires various forms to be filled out and submitted to the court, much of this work is done electronically thanks to electronic filing.

In most cases, we simply need an intake form completed, values for your property, bank statements for 3 months, tax returns for 2 years, paystubs for 6 months and a list of your debts.  Our Firm handles the rest.  We have the necessary experience and dedication to make your filing go smoothly and efficiently.

After filing, a Trustee assigned to your case may require additional financial documentation, but audits are extremely rare (the current audit rate is approximately 1 out of every 1000 cases filed).  In the rare instance of an audit, we have successfully assisted our clients through the audit with no problems.

MYTH #5: You Cannot File Bankruptcy by Yourself if You Are Married.  

Bankruptcy myths: You Cannot File Bankruptcy by Yourself if You Are Married. False. The bankruptcy laws permit anyone to file for bankruptcy, whether individually or jointly.  If you are married, you and your spouse must decide if a joint filing is necessary.

For example, if you and your spouse have joint debts together, such as a mortgage, credit cards, and/or loans, then filing together makes sense.  The bankruptcy will help eliminate or restructure these joint debts.  However, in new marriages, where one spouse has good credit or no joint debts, it may be smarter for the other spouse to file individually to eliminate his or her own debts.

MYTH #6: You Can Only File for Bankruptcy One Time.

Wrong.  While the bankruptcy laws were tightened in 2005, you are still permitted to file for bankruptcy more than once, depending on when you filed and the type of bankruptcy.

In Chapter 7, you can receive a discharge once every 8 years, and in Chapter 13, you can receive a discharge every 2 years.

If you get discharged through Chapter 7, you have to wait 6 years before obtaining a discharge through Chapter 13.

If you obtain a Chapter 13 discharge, you must wait 4 years before getting a discharge through Chapter 7.

If your prior case was dismissed, there is typically no waiting period to re-file (although a case dismissed “with prejudice” will have a waiting period attached).  In these situations, it is crucial to contact a knowledgeable bankruptcy attorney, as there are certain motions that must be filed in order to extend the bankruptcy protection in your current case.  Our Firm has the knowledge and experience to guide you through this process. We have assisted numerous clients with subsequent filings.

MYTH #7: Bankruptcy Will Destroy Your Credit Score.

Bankruptcy myths: Bankruptcy Will Destroy Your Credit Score.While your credit rating will be affected when you file, it will not be destroyed forever.  Depending on your situation and level of debts, you may actually increase your credit score by filing for bankruptcy.  Bankruptcy helps eliminate the negative consequences of your unpaid debts, whether you file under Chapter 7 or Chapter 13.  All negative activity will terminate, including interest, late fees, collection fees, and attorney fees.  Ten years after filing, the bankruptcy will also be removed from your credit report, revealing a clean slate.

MYTH #8: Some Creditors are Immune from the Bankruptcy and Can Still Sue You.

This is absolutely false. In fact, one of the primary reasons to file bankruptcy is to eliminate ALL collection activities.  When you file the bankruptcy petition, whether through Chapter 7 or Chapter 13, you and your property receive automatic protection from the court against your creditors (known as the “automatic stay”), which also includes the creditor’s attorneys, collection agencies, representatives, and/or agents.

Federal law specifically prohibits your creditors from contacting you for any reason, including through written correspondence, monthly bills, or phone calls.  Creditors must cease all collection efforts against you, meaning they cannot file a new suit, continue a prior lawsuit, or collect on a prior legal judgment.

MYTH #9: Most People Do Not Qualify for Bankruptcy Because of the Means Test.

Personal Bankruptcy Means TestThis is not true. When the new bankruptcy laws passed in 2005, many debtors became frantic.  Creditors tried to convince the country that bankruptcy would only apply to a small percentage of poor and destitute people.  This was a massive fabrication of the new laws.  In reality, the 2005 legislation changed the method in which debtors qualify for bankruptcy under the Means Test, but it did not prevent people from filing.

In fact, bankruptcy filings have actually increased since the new laws were enacted, especially in light of the foreclosure crisis.  Don’t believe what you hear — whether on television, in the paper, or from friends or family members.  To learn the truth about the current bankruptcy laws under Chapter 7 and Chapter 13, give our Firm a call.

MYTH #10: Personal Bankruptcy Will Ruin Your Family.

Lots of things lead to family problems, but bankruptcy may actually offer a solution to some of your problems.  You may be on the brink of divorce because of your financial crisis.  Our Firm sees this a lot.  In some cases, you can put a stop to the family problem by filing for bankruptcy and getting a fresh, financial start.

Although filing for bankruptcy can be a very difficult decision in your life, the absence of all this stress may give your relationship a fighting chance.

Need more information about bankruptcy?  Please call our Firm to speak to a bankruptcy lawyer at 281-888-5581.  The road to financial freedom starts here.