Bankruptcy Myths

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Myth #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 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, the number of filings is so massive, that 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.

Myth #2. You will lose everything you have:

Nothing could be further from the truth, most people who file bankruptcy don't lose anything.

Rhode Island has exemptions that protect certain kinds of property. There are exemptions to protect such things as your house, your car, your truck, household goods and furnishings, IRAs, retirement plans, the cash value in life insurance, wages, and personal injury claims. There is even a "wildcard" exemption that can be applied wherever you want it. In those rarer situations where you have 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 higher Chapter 13 plan payment.

As mentioned above (Myth 2) filing bankruptcy does not generally wipe out liens. Therefore, if you want to keep a car, truck, home or business equipment that serves as collateral for a loan, you need to keep paying on the 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.

Myth #3. You 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 client's are back to having good credit within a couple of years after the bankruptcy. How you handle your credit repair after bankruptcy is up to you, but if you follow our program, chances are you will have good credit sooner rather than later.

Myth #4. You will never get credit again:

Quite the contrary. 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 unfortunately it won't be long before you're getting credit card offers again. It's unfortunate because you don't want to get right back in debt again. At first 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, the quality of your credit will get better and better. Generally if a client has not re-established good credit in 1 to 2 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 #5. Filing bankruptcy will hurt your credit for 10 years:

Not true. You are getting the fact that bankruptcy is reported on your credit report for 10 years 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.

First let's get one thing out in the open. By the time you need to make an appointment to see a bankruptcy attorney your credit is already messed up or maxed out or both. This being the case you have no credit for bankruptcy to hurt.

Furthermore, as I mentioned above, in my experience, if you have not re-established good credit in 1 to 2 years after you file bankruptcy, most likely, it has nothing to do with the fact that you, once upon a time, filed bankruptcy, and it certainly has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy.

Myth #6. If you are married, both you and your 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. We have many cases where only one spouse has filed. The good news is that generally, if it makes sense for both spouses to file together they can both file for the price of one filing.

Myth #7. It's really hard to file for bankruptcy.

No it is not. With the help of an experienced attorney who can tell you what to do to prepare for your filing, it gets much easier. The decision to file may be a tough one, but once the decision is made, you need only do what the attorney tells you to do. It's not difficult and is very straightforward. Having a coach and counselor on your side to guide you through the process makes it a simple process.

Myth #8. Only deadbeats file for bankruptcy:

Not true. Most of the people who file bankruptcy are good, honest, hard-working people, who file as a last resort, after months or years struggling to pay the bills that 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 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.

Doctors, Businessmen, Bankers and even yes even, Attorneys file for Bankruptcy. Donald Trump for example has filed for bankruptcy multiple time.

Myth #9. Filing bankruptcy means you are a bad person:

There's a reason over 1,000,000 Americans file bankruptcy each year and it's not because they're bad people. Lots of good, honest, hard-working people fall on hard times. 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.

Myth #10. Filing bankruptcy will hurt your credit:

Not True . Think about it. By the time you come to a bankruptcy attorney, your credit is already either messed up or maxed out. And if it's already messed up or maxed out, how can bankruptcy hurt it?

The big surprise for my clients is when I tell them that filing 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, if only someone will give it to you. Therefore, bankruptcy is the first step in the process of re-building your credit.

The truth of the matter is that bankruptcy has very little to do with the algorithms that affect your credit score. In some cases, filing bankruptcy actually raises your credit score right away!

Myth #11. Even if I file, creditors will still harass me and my family:

NOT true. 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. Nothing. This order has a name. It is called the "automatic stay"; and it is issued pursuant to 11 United States Code, Section 362. The automatic stay prohibits you from any and all collections 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. 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. Bankruptcy Court Judges do not take kindly to creditors who ignore the automatic stay, and these Judges have been known to punish creditors severely. Once you file for bankruptcy, creditors must leave you alone or suffer the consequences.

Myth #12. If I file, it will add to the burden I am already facing in my marriage and might result in divorce:

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 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, the stress 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 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. The number one reason for divorce in the United States is money troubles. Imagine if you had no more money troubles!

Myth #13. You can't get rid of taxes through bankruptcy:

We get rid of old "income" taxes for our clients all the time. "Old" means income taxes more than 3 years old. Under the law, there are 3 or 4 qualifications that have to be met, but, once these are met these taxes are gone. There are exceptions to this rule and it is important for you to meet with an attorney to determine if your taxes are dischargeable.

Myth #14. You can only file once for bankruptcy:

False. You can only file for Chapter 7 once every six years. You can file a Chapter 13 at any point in time, even if you have just completed a chapter 7. We like to call it a Chapter 20.

Myth #15. You can pick and choose which debts and property to list in your bankruptcy:

False. Doing so would be against the law. When you file bankruptcy you must list all your property and 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 the same 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. In fact after you file bankruptcy there are some debts you have to keep paying on. For instance, if you have a car, truck or house loan, even though you list the debt in your bankruptcy if you want to keep the car, truck or house you have to keep paying on the debt. As long as you stay current on the loan and keep the property properly insured you are protected under the law and you get to keep the property.