Debunking Common Bankruptcy Myths
If you are struggling to pay your bills or otherwise burdened by debt, you should not feel embarrassed or ashamed to consider bankruptcy. Bankruptcy is your right under federal law, and a proactive means for you to confront and overcome your debt situation. However, many people avoid filing for bankruptcy for reasons that are not even true or accurate, when bankruptcy could be the answer to their financial troubles. Here, we address — and debunk — some of the most common myths about bankruptcy.
At Brian R. Cahn & Associates, LLC we are committed to helping our clients find relief from debt and return to positive financial health. With offices in Cartersville, Calhoun, Dalton and Dallas, we serve individuals and business throughout northwest Georgia.
Myth #1 – Everyone will know I’ve filed for bankruptcy.
While it is true that bankruptcy is a public legal proceeding, the number of people that file for bankruptcy is so large that very few publications have the space, manpower or inclination to print all of their names. Therefore, unless you are a prominent person or major corporation and your bankruptcy filing is picked up by the media, the chances are very good that only your creditors will know about your filing.
Some local newspapers do publish bankruptcy filings (the newspaper in Rome, Georgia, for example), but the majority of local newspapers have better things to print. The Daily Tribune News in Cartersville, for example, does NOT print bankruptcy filings.
Myth #2 – All debts are wiped out in Chapter 7 bankruptcy.
Even with Chapter 7, certain types of debts cannot be discharged and erased. They include child support, alimony, government-issued or government-guaranteed student loans, and debts incurred as the result of fraud.
Myth #3 – I’ll lose everything I have.
Among the many bankruptcy myths, this is the misconception that keeps people who really should file for bankruptcy from doing it. They think the government will sell everything they have and they’ll have to start over in a cardboard box.
In fact, Georgia, along with every other state, has exemptions that protect certain kinds of assets from liquidation, including your house, your car (up to a certain value), money in qualified retirement plans, household goods and clothing. (For a complete list of exemptions, please see our bankruptcy questions.) With these exemptions, many people pass through bankruptcy and keep everything they have.
Myth #4 – I’ll never get credit again.
It’s actually quite the contrary. Before long, you will be getting credit card offers again; however, they’ll be from subprime lenders that charge a very high interest rate. You’ll want to consider these offers very carefully, but if you do use them wisely and pay your bills on time, they can help you begin rebuilding your credit.
Myth #5 – Only deadbeats file for bankruptcy.
In most cases, people file for bankruptcy after a life-changing experience, such as a divorce, the loss of a job, or a serious illness. They have struggled to pay their bills for months and just keep falling further behind.
As a side point, if you are in a position to buy a house or car, you may want to do it before you file for bankruptcy. After bankruptcy, those loans will be tough to get and the higher interest rate on such a large purchase will have a significant effect on your payments. Also, if you have a credit card with a zero balance on the day you file for bankruptcy, you do not have to list it as a creditor because you do not owe any money on it. This means you may be able to keep the card even after bankruptcy.
Myth #6 – If you’re married, both spouses have to file for bankruptcy.
If one spouse has a significant amount of debt in his or her name only, it is not necessary for both spouses to file for bankruptcy. However, if spouses have debts they want to discharge that they are both liable for, they should file together. Otherwise, the creditor will simply demand payment for the entire amount from the spouse who did not file.
Myth #7 – I don’t want to include certain creditors in my filing because it’s important to me to pay them back someday, and if the debt is discharged, I can’t ever repay them.
Bless you for even thinking about such a thing. While you are no longer obligated to repay your creditors after bankruptcy, you always have that opportunity. If your conscience will not let you sleep at night because you did not pay your debts, there is nothing in the Bankruptcy Code that prevents you from doing so once you are back on your feet. But bankruptcy is an all-or-nothing deal, so you have to include all your creditors in the petition.
Myth #8 – You can’t get rid of back taxes through bankruptcy.
Unfortunately, this is one of the most common misconceptions about bankruptcy. Taxes CAN be discharged through bankruptcy, but you will need to discuss the criteria for dischargeability with your attorney. Generally, income taxes that came due more than three years ago CAN BE ELIMINATED.
Myth #9 – You can file for bankruptcy only once.
You can file for bankruptcy more than once; however, the bankruptcy law that went into effect in October 2005 lengthened the required wait between filings. Under the new law, you can file for Chapter 7 bankruptcy only once every eight years, and you have to wait two years to repeat a Chapter 13 filing. There must be four years between a Chapter 7 and a Chapter 13 case.
Myth #10 – I can max out all my credit cards, file for bankruptcy, and never pay for the things I bought.
Actually, this is a form of fraud, and credit card lenders as well as bankruptcy judges can get very cranky about it.
Contact an Experienced Bankruptcy Lawyer in Northwest Georgia
For a free initial consultation about bankruptcy or debt relief, please email Brian R. Cahn & Associates, LLC or call 770-744-0879. We have been practicing bankruptcy law in northwest Georgia longer than any other law firm.