Ronald Ceniceros: Myths About Bankruptcy

I’ve heard many myths about bankruptcy because I’m a bankruptcy lawyer. Myths about bankruptcy are common because the bankruptcy code is complex and not clearly understood by many people or even attorneys. And to make matters worse, creditors have no incentive to tell the truth, the whole truth and nothing but the truth – especially when it comes to the awesome power of bankruptcy. It’s time these myths were busted:

Myth 1: I won’t qualify.

Nothing could further from the truth. If you’re struggling to make ends meet and pay your bills, you most likely qualify – at least unless you’ve filed bankruptcy in the past couple of years (and even then you may have options).

Myth 2: Everyone will know I filed.

It’s true that bankruptcy records are a matter of public record, but unless you’re a celebrity, news outlets have no incentive to share your information. Thousands of people file bankruptcy every day. So unless your friends and family make a habit of reviewing local bankruptcy filings on a daily basis, it’s likely that the only people that will ever know are your attorney, court officials, creditors, individuals or institutions that review your credit report and anyone else you decided to tell.

Myth 3: I’ll lose everything.

This is probably the most common of all myths that surrounds bankruptcy. But also one of the most incorrect. In fact, Both Chapter 13 and Chapter 7 bankruptcy laws have “exemptions” that let you keep many or all of your possessions. This is especially true in Chapter 13 which is even more flexible. If you wish to retain any property secured with a loan, you can continue paying your debts as long as the asset fits within your exemptions. The exemptions cover a long list of assets – primary residence, rental property, land, vehicles, household goods, pieces of furniture, jewelry, pets, tools, machinery, benefits, life insurance claims, personal injury, worker’s compensation, retirement plans and much more.

Myth 4: I will never be able to own anything again.

You can own anything and everything you can afford even after you have filed for bankruptcy. After all, the laws allow you to hold on to your precious possessions and your monetary assets. And there is no restriction on you to go ahead and earn as much as you can or invest in a profitable venture.

Myth 5: Bankruptcy will ruin my credit.

Bankruptcy is reported on your credit report for the next 10 years – true. But this does not ruin your creditworthiness. In fact, most of our clients have better credit a single year after filing their case than they did before! This is relatively easy – when you file for bankruptcy, you are cleared of all your debts. This means you can save more and pay your bills on time. And of equal importance, when you file for bankruptcy, your debt to income ratio levels out! Yes, you actually endear yourself to lender who see you as debt-free and thus ideal to lend money to. That’s right – it’s likely that you may actually increase your chances of receiving credit after you file for bankruptcy.

Myth 6: Bankruptcy doesn’t wipe out taxes.

Bankruptcy can’t wipe away all taxes all the time, but there are a series of rules that can be applied to judge whether or not this is possible. Generally speaking, income or sales taxes that are more than three years old can be waived, but the rules are complex so it’s best to speak with a local bankruptcy attorney to discuss your options.

Myth 7: Bankruptcy can’t stop legal action once it starts.

False! Bankruptcy has a provision called the automatic stay. This is one of the most powerful elements of filing bankruptcy. It instantly halts all collection efforts on most types of lawsuits, including phone calls from creditors, lawsuits, garnishments, repossessions and even foreclosure. This protection lasts for the duration of your case, and usually becomes permanent on the related debts once your case is finalized.

Myth 8: My spouse will have to file bankruptcy too.

There is NO law that dictates that a married couple must file together. However, if partners have signed (and are thus liable) for unmanageable debts, then it may be sensible for them to file together. Otherwise, co-signed loans will still affect the individual that does not file for bankruptcy. When a couple does decide to file together, this is called a joint filing – a single case rather than two separate cases, which can save money on attorney and court fees.

Myth 9: Filing bankruptcy is stressful.

While filing for bankruptcy can be intimidating, once you are armed with the facts, it can offer overwhelming peace of mind. Bankruptcy gives you a chance to shrug off debts and rebuild your credit—pay your bills on time, save money, and thus lessen the amount of stress that you and your family have to endure. Being behind on bills causes the most stress and even puts a strain on marital relations. Bankruptcy is the solution, not the problem.

Myth 10: I can only file for bankruptcy once.

Not true! Depending on your situation (the chapter and outcome of the previous case) you can re-file for bankruptcy anywhere between immediately and up to 8 years.

Free Consultation with Bankruptcy Lawyer

If you have a bankruptcy question, or need to file a bankruptcy case, call Ascent Law now at (801) 676-5506. Attorneys in our office have filed over a thousand cases. We can help you now. Come in or call in for your free initial consultation.