1. Bankruptcy No Longer Exists
It is still very possible to file for bankruptcy. This myth stems from the fact that in 2005, Congress enacted sweeping changes to the United States Bankruptcy Code referred to as the "Bankruptcy Abuse Prevention and Consumer Protection Act." While these changes made it slightly more difficult, and considerably more complicated, to file for bankruptcy - the simple truth is that bankruptcy still exists and is a viable option for the vast majority of debtors in financial distress.
2. I Will Lose Everything if I File for Bankruptcy
The overwhelming majority of bankruptcy filers get to keep all of their personal property, including household goods, televisions, clothing, jewelry, keepsakes, cars, other items of value. Your bankruptcy attorney will tell you exactly what you stand to keep or lose before the filing of the bankruptcy petition so you can make an informed decision about the best course of action for you and your family. Furthermore, all earnings (such as income from a job) after filing of the bankruptcy petition are yours to keep.
3. I Have to Be a Citizen to File for Bankruptcy
Absolutely Not! You do not have to be a citizen of the United States to file for bankruptcy. Please do not let your citizenship or immigration status stop you from contacting a bankruptcy attorney.
4. Bankruptcy Will Ruin My Credit for 10 Years
It is true that bankruptcy will have a negative impact on your credit report - at least for a while. It is also true that bankruptcy will stay on your credit report for 10 years. However, this does not equate to your credit being ruined for 10 years.
For those with low scores, filing bankruptcy might actually increase your score 1-2 years after your bankruptcy! How is this possible? Thirty percent (30%) of your credit score is based upon a) the total amount you owe to your creditors and b) your total credit limit.
Since filing for bankruptcy eliminates most (if not all) debts you owe to your creditors, this area is immediately improved. Then, you just have to worry about increasing your total credit limit.
Many creditors will extend credit to bankruptcy filers because a) they can, at least for a while, justify charging you a higher interest rate (more money for them) and b) if you filed a Chapter 7, they know you cannot file again for 8 years!
5. I Will Never Be Able to Rent Again after Bankruptcy
It is true that many debtors face challenges renting after bankruptcy. Many property management companies of large apartment complexes have "no bankruptcy policies" and strict credit guidelines. It will be far easier to rent from an individual landlord who manages their own rentals - such as someone seeking to rent out a home, or the owner of smaller apartment complex. You may be required to pay a larger security deposit to quell any concerns of the landlord.
No matter what, do not despair! If you enter your apartment search with the understanding that you may be turned away from the get-go by certain companies or individuals, it will be easier for you to keep your mind on this simple fact: it might be a little trickier, but you WILL find a place to call home!
6. No One Will Ever Extend Me Credit Again after Bankruptcy
Many bankruptcy filers are shocked at how soon they start receiving unsolicited offers for credit after filing: advertisements for new cars and pre-approved credit cards in the mail are pretty common. Since, if you are filling a Chapter 7 bankruptcy, you cannot file another bankruptcy for 8 years - many creditors are comfortable extending you new credit.
7. If I Am Married, I Must File Together With My Spouse
You are not required to file jointly with your spouse. Often times, one spouse wants to stay clear of bankruptcy so that their FICO scores are not affected - and it makes it easier for the household to obtain new credit, housing, or jobs in the future. There are many legal considerations that go into deciding whether only one spouse, or both, should file in California. If you are married and are considering having only one spouse file for bankruptcy, please speak to a bankruptcy attorney.
8. I Can Go to Jail For Filing Bankruptcy
Nonsense! Often times, debt collectors threaten prison if debts are not paid. This is completely and absolutely false. On the contrary, the debt collector himself is breaking the law by making such threats. Bankruptcy is a perfectly legal procedure mentioned in the United States Constitution and codified, by Congress, in the United States Bankruptcy Code. If you have been the victim of an unscrupulous debt collector who has threatened prison if you file for bankruptcy (or fail to pay your debts), please contact a local bankruptcy attorney immediately!
9. I Can't file Bankruptcy If I Have an Income
You may still file for bankruptcy if you have an income.
If your income is below the median household income for your family size, you are eligible to file for a Chapter 7 so long as your necessary monthly expenses meet or exceed your current monthly income.
If your income is above the median household income for your family size, you must complete a "Means Test," wherein certain allowable IRS expenses and payments to your secured and priority creditors are deducted from your income to calculate your "Disposable Monthly Income" (DMI). If your DMI is less than $109.58, you may still file for Chapter 7 bankruptcy. If your DMI is between $109.58 and $182.50, and this is enough to pay more than 25% of your non-priority unsecured creditors, you must file for Chapter 13 bankruptcy. If your DMI is above $182.50, you must file for Chapter 13 bankruptcy regardless of the percentage amount of your non-priority unsecured debt you can repay.
10. If I File Bankruptcy, I Cannot File Bankruptcy Ever Again
If you file a Chapter 7 bankruptcy, you cannot file another Chapter 7 bankruptcy for eight (8) years since your last Chapter 7 bankruptcy discharge.
If you file a Chapter 13 bankruptcy, you will not receive a Chapter 7 discharge until six (6) years have passed since your Chapter 13 discharge, unless (1) you paid all secured claims in full in the earlier case, (2) you made payments to your unsecured creditors of at least 70 percent of their total claims, and (3) your plan was proposed in good faith and represented your best efforts. Otherwise, you may file again after four (4) years since your last discharge.
If you file a Chapter 13 bankruptcy, you cannot file another Chapter 13 bankruptcy until two (2) years since you last filed a Chapter 13 bankruptcy.
11. My Friends and Neighbors Will Know I Filed for Bankruptcy
It is true that bankruptcy filings are public, and if someone wanted to, they would be able to view your bankruptcy petition, schedules, and statements, and attend your Meeting of Creditors and Confirmation Hearing (if applicable). That being said, the court only actively sends notices to your co-debtors and creditors. Therefore, there is no reason why your friends or family should find out you have filed for bankruptcy unless they specifically seek the information out.
12. I Can Go on a Spending Spree Before I File Bankruptcy
Absolutely not! Consumer debts owed to any single creditor for "luxury goods and services "in the amount over $500 within 90 days, or cash advances totaling more than $750 within 70 days, of filing for bankruptcy are presumptively non-dischargeable. Also, payments to any creditor of $600 or more within 90 days of filing your bankruptcy are considered "preferences," and your trustee (the government appointed representative who oversees your case) has the power to get that money back and more evenly distribute it among your creditors.
Also, if a credit card company or any other creditor suspects you spent money without the intention of ever paying it back (for instance, going on a huge vacation 95 days before filing bankruptcy), they could file a lawsuit against you in bankruptcy court opposing the discharge of those debts.
13. Bankruptcy Gets Rid of All My Debts
There are certain kinds of debts that are non-dischargeable in bankruptcy. Student loans (unless you can meet an extremely high standard of undue hardship), government debts such as fines, tickets, and most unpaid taxes, child support payments, alimony payments, and civil judgments resulting from fraud, drunk driving or other harms against the person are generally non-dischargeable. However, if you have these kinds of loans or debts, you must speak to a bankruptcy attorney who can assess the likelihood of discharge based upon the specific facts of your case.
14. Bankruptcy Is the End of the Road / I am a Loser for Filing Bankruptcy
You may be surprised to learn that many rich, famous, and successful people have filed for bankruptcy in the past. Henry Ford, Walt Disney, Larry King, Milton Hershey (founder of Hershey's Food Corporation), and Henry Heinz (yes, the ketchup guy) have all filed for bankruptcy at one point in their lives. So, far from being the end of the road, bankruptcy affords people a fresh start - a government endorsed safety net that helps soften the blow and bounces you back after you've fallen.
