Bankruptcy Myth #1: If I file a bankruptcy, I will be left with nothing
Many people think that filing bankruptcy means you have to give up everything that you own. This couldn’t be farther from the truth. The Federal government and the State of Michigan provide exemptions that allow the majority of bankruptcy filers to keep everything that they own. Exemptions allow you protect assets (up to a certain value) like a house, vehicle, retirement accounts, jewelry, furniture, just to name a few. The purpose of bankruptcy is to provide people with a fresh start. The government recognizes that people need to keep their essential assets to help them move on with their life.
Bankruptcy Myth #2: I will never be able to get credit after filing bankruptcy
This is absolutely untrue. Your credit is made up of many factors, including the amount of debt you have, payment history, length of credit history, and types of credit. Bankruptcy can actually help your credit by eliminating most, if not all, of your debt. It’s not unusual for my clients to receive offers of credit quickly after their bankruptcy discharge.
Bankruptcy Myth #3: I won’t ever be able to buy a house or a car ever again
Your eligibility to obtain a typical mortgage to buy a home is usually delayed about 2 years after filing bankruptcy. As for vehicles, there are a variety of lenders who will provide car loans to those who have only recently filed bankruptcy.
Bankruptcy Myth #4: Everyone will find out that I filed bankruptcy
The filing of a bankruptcy is a federal court proceeding, therefore it is a public record. Most clients are concerned that their family and/or friends are going to be notified. Unless you owe your family or friends money, the bankruptcy court does not send notices to anyone except your creditors.
Bankruptcy Myth #5: Bankruptcy does nothing for the taxes I owe the IRS or State
Discharging taxes is somewhat complicated but, in many cases, tax liability can be reduced or completely eliminated with the filing of a Chapter 7 or Chapter 13 case. There are many factors to consider including the date the taxes are owed and when they were filed. A thorough review of your tax situation by our office will help you determine if a bankruptcy can help reduce or eliminate your tax liability.
Bankruptcy Myth #6: Only financially reckless people file bankruptcy
This could not be further from the truth. There are many different reasons people choose to file bankruptcy. Usually it’s because of a tragic event in their lives that caused them to be unable to pay their debts. A job loss, divorce, serious medical issue, and/or a business failure are just a few of the common life events that can drive a person into filing bankruptcy. The vast majority of our clients paid their debts when they could but can no longer do so because of events beyond their control.
Bankruptcy Myth #7: New Laws have made it extremely difficult/expensive to file bankruptcy
This myth is usually in reference to the Bankruptcy Abuse Prevention and Consumer Protection Act that was enacted in 2005. While this act made some significant changes to the bankruptcy code to prevent fraud and abuse, honest debtors can still expect to continue to receive a fresh start as before. Congress added a few extra documents that need to be filed and credit counseling courses are now required.
Bankruptcy Myth #8: I have to file jointly with my spouse or my spouse’s debt is my debt
It’s a common myth that because you are married, you are automatically responsible for your spouse’s debt. This is often not the case as both you and your spouse have separate credit histories and may not have the same amount of debt. You are not required to file jointly with your spouse, but it sometimes makes sense to do so particularly if you have co-signed on debts.
Bankruptcy Myth #9: I have to have a minimum amount of debt to file bankruptcy
Every case is different and there is no specific amount of debt that you are required to have in order to file bankruptcy. If the debt you have is more than you can handle, a bankruptcy is one option that you should consider.
Bankruptcy Myth #10: Debt settlement/consolidation is always a better option than a bankruptcy
Debt consolidation/debt settlement companies are often an extremely costly and futile option. Your creditors are not required to work with these companies and the plans that you are put in are no guarantee against a creditor suing you. Many of my clients have paid significant sums to these companies over a long period of time only to have their creditors come after them because they were not being paid quickly enough. Bankruptcy provides court protection and takes care of all your debts in one process. The cost is usually much less and you are often able to resolve your debt problems much more quickly and cheaply than through debt settlement/consolidation.