The Bankruptcy Survival Guide

Let's bust some myths about bankruptcy...

Myth 1:      I know what I am doing and I can file bankruptcy myself without using an attorney.

 Fact: That is true; you can file a bankruptcy without the assistance of an attorney. However, simply because you read things from the internet or from a book does not mean that you will get the results that you are seeking. Bankruptcy can be best described as being about as complicated as the IRS code. This is the reason why many times when debtors file their own bankruptcy and do not file it correctly, they later on seek the assistance of a bankruptcy attorney.

Filing bankruptcy requires the proper timing and circumstances, otherwise you can lose your unprotected assets or property, or you can be accused of committing criminal fraud or perjury, or your bankruptcy petition may be disapproved by the court and you may not be allowed to file a bankruptcy for years. It is prudent to have the guidance of a bankruptcy attorney. 

Myth 2:      I should cash out my pension or 401k and pay my creditors to leave me alone. 

Fact: Your pension or 401k is your financial cushion for the future. Do not cash it out. It is the last financial source you should touch. Certain pensions and 401ks can be protected from the grasp of your creditors. Have a bankruptcy attorney review your finances to see what assets can be protected.

Myth 3:      Everyone will know that I filed.

Fact: Your creditors are notified of your bankruptcy so that their interests are addressed in the bankruptcy. It is not likely that the public will hear about your bankruptcy, unless you are a well known person and the press finds out about it.

Myth 4:      I will lose everything I own.

 Fact: Not necessarily, it is important to get a consultation with a qualified attorney to review what you own so that the attorney can find out if what you own is protected by exemptions. Bankruptcy exemptions are statutes that allow a debtor to keep certain property or assets even after the bankruptcy is filed and to keep the exempt property from being seized or sold to pay for the debtor’s debts. 

Myth 5:      I will never be able to fix my credit. Nobody will ever lend me any money. 

Fact:  You can get credit after bankruptcy. In fact, you will be bombarded with credit card offers soon after file bankruptcy because the creditors know that you cannot file another bankruptcy for years to erase those debts from your shoulders. If you use the credit card after filing for bankruptcy, you have to be careful on how you use it and it may take a few of years before a creditor would be willing to give you credit at a lower interest rate. Some debtors after they are finished with their bankruptcy make borrowings with somebody they know that has good credit. By making the timely and regular payments, the debtors credit score starts improving. It is also recommended that debtors should timely pay their non-discharged debts to improve their credit scores. 

Myth 6:      Both spouses must file bankruptcy.

Fact: One spouse may have more debt than the other spouse and if there are no joint debts, then the spouse with less debt may not have to file bankruptcy. If there is a joint debt and it is being paid in the bankruptcy, then the spouse with less debt may not have to file bankruptcy. A bankruptcy attorney can best determine the options of the debtors.

Myth 7:      I am too poor to afford to pay for an attorney to file my bankruptcy.

Fact: In Chapter 13 bankruptcy, the attorney gets paid through the bankruptcy plan and is paid over a span of 3 to 5 years so the payment is not so burdensome on the debtor. In a Chapter 7 bankruptcy, the debtor may stop payment on the credit cards or unsecured debts, which will be erased in the Chapter 7 bankruptcy, to save up for the bankruptcy filing costs.

Myth 8:      Debtors who are dishonest and lazy file bankruptcy.

Fact: 90 percent of bankruptcies are filed by people who 1. have lost their jobs or decreased earnings, 2. have a family member that got sick or died, 3. have gone through a divorce, and 4. have large credit card bills, car loans, mortgages, student loans and tax debts. Majority of debtors try to find alternatives to pay their debts. Unfortunately, the financial responsibility is too overwhelming. 

Myth 9:      Debt Consolidation groups can do a better job than bankruptcy for improving                        my credit and for paying my bills.

Fact: Debt Consolidation groups claim that they have thousands of accounts and because of this the creditors will have to work with them and that they can discount the debts to 50 percent or more. There is no law that requires the creditors to work with them. If the creditors are not willing to work with you, then it is no likely that the creditors will work with the Debt Consolidation group. The Debt Consolidation groups set up the payments so that they get paid first and the creditors get paid later. Therefore, it may take several months before any funds are available for your creditors. In the meantime, you are instructed not to talk to or to pay your creditors, and you are put in jeopardy of being sued by your creditors if your creditors are not paid. Forgiven debts that are reported by the creditors via a Form 1099 to the IRS are taxable.