Top Bankruptcy Questions

Everyone will know you 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 whom 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 chance that anyone will ever know you filed. However, telling someone that someone else filed bankruptcy is good gossip. Just like telling 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. As for newspapers, our experience is that most papers don’t publish information about who filed bankruptcy. Even if they did, who would be interested enough to read about it.

You will lose everything you have.

Nothing could be further from the truth. The fact is most people who file bankruptcy don’t lose anything.

First, while laws vary from state to state, every state has exemptions that protect certain kinds of property. Using California as an example, there are exemptions to protect such things as your house, your car or truck, household goods and furnishings, IRAs, retirement plans, the cash value of life insurance, wages and personal injury claims. There is even a “wildcard” exemption that can be applied wherever you want it. In those rare situations where you have more property than can be protected by available exemptions, there is always Chapter 13. In Chapter 13 you can even keep this property by paying a Chapter 13 plan payment.

Second, as mentioned above, 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.

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.

You will never get credit again.

Filing bankruptcy gets rid of debt, and getting rid of debt puts you in a position to handle more credit. Because of this, you will look more attractive to would-be lenders. In our experience, unfortunately, it won’t be long before you’re getting credit card offers again. We say “unfortunately” because we don’t want you to get right back in debt again. At first the would-be lenders will want more money down, and will want to charge you higher interest rates. However, if you remain employed, start saving money, pay your bills on time, and do things that will put good marks on your credit report, the quality of your credit will get better and better. Generally, in our experience, if a client has not re-established good credit in 2 to 4 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.

Filing bankruptcy will hurt your credit for 10 years.

Not true. It is true that the bankruptcy will be reported on your credit report for 10 years, but just because something is reported on your credit report does NOT necessarily mean it will have a negative effect on your credit standing.

By the time you need to make an appointment to see a bankruptcy attorney, your credit is undoubtedly already messed up, maxed out, or on a clear path to ruin. This being the case, you ultimately have no credit for a bankruptcy to hurt.

Most of our client’s are surprised when we 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.

It has been our experience that if you have not re-established good credit in 2 to 4 years after you file bankruptcy, most likely it has nothing to do with the fact that you filed bankruptcy, and it certainly has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy.

If you’re married…both you and your spouse have to file for 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 if it makes sense for both spouses to file together, they can both file for the price of one filing.

It’s really hard to file for bankruptcy.

No it’s not, at least not in the hands of an experienced bankruptcy attorney. In the hands of an experienced bankruptcy attorney filing bankruptcy is easy. The decision to file may be hard, but once the decision is made the filing part is easy.

Only deadbeats file for bankruptcy.

Not true. Most of the people who file bankruptcy are good, honest, hard-working people just like you and me. Most people file as a last resort after months or years struggling to pay the bills left over from some life-changing experience such as a divorce, the loss of a job, a failed business venture, a serious illness, some family emergency. Many need to file because they honestly and mistakenly fell into debt at a young age, before they knew better and before they knew anything about budgeting or how to manage money.

Filing bankruptcy means you’re a bad person.

Not true. There’s a reason over a million 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. Let’s face it, life can be brutal and sometimes the money’s just not there. The bankruptcy laws 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”.

If you file for bankruptcy, creditors will still harass you and your family.

This is NOT true. In fact, nothing could be further from the truth. 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. Believe me, Bankruptcy Court Judges do not take kindly to creditors who ignore the automatic stay, and these Judges have been known to punish creditors severely. Very simply, once you file for bankruptcy, creditors must leave you alone or suffer the consequences.

If you file for bankruptcy, it may cause more family troubles and may even lead to divorce.

No one can predict what a bankruptcy will do to a family or a marriage. But, 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 your 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.

You can’t get rid of back taxes through bankruptcy.

We get rid of old “income” taxes for our clients all the time. By “old” we mean 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. Please note: Filing bankruptcy does NOT get rid of withholding or sales taxes no matter how old they are.

You can only file once for bankruptcy protection.

The truth is you can only file for a Chapter 7 bankruptcy once every 8 years. But after 8 years, if need be, you can file again. As for filing a case under Chapter 13 of the Bankruptcy Code, there are no such restrictions. Hopefully, however, you will never need to file more than one bankruptcy.

You can pick and choose which debts and property to list in your bankruptcy.

Sorry, but you can’t. Doing so would be against the law. Under the law, when you file bankruptcy, you have to list all your property and all your debts. Most people want to leave out a debt because it is their intent to keep paying on it. The good news on this score 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. More importantly, you need to know this. 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 because under the law the creditor is stuck with you and can’t do anything about it.