Bankruptcy Myths

There are many myths about Bankruptcy. As a bankruptcy attorney, I find that many clients have heard things about bankruptcy which are incorrect.

1 – The New Bankruptcy Laws make it impossible for most people to file.

Almost everyone is still able to file some form of bankruptcy relief. Most of the clients who seek my advice are eligible for Chapter 7 bankruptcy; some persons are not eligible, either because their income is too high, or because of a prior bankruptcy case. Most of those clients are able to file for relief under Chapter 13.

2 – If I file for bankruptcy, I will lose everything I have.

In many cases, you can keep your house, your car, and most or all of your personal possessions. There are bankruptcy exemptions, which (within certain dollar limits) can protect the equity in your home or other assets. Before filing, you should review with your bankruptcy attorney the exemptions which are available to you.

3 – After I filing bankruptcy, I will never be able to get credit again.

This is certainly not true. Some car dealers in the Altoona area actually advertise for persons who have filed bankruptcy. Understand, however, that the interest rate is likely to be higher than it would be for someone with a high credit score.

A bankruptcy discharge can be seen as a starting point for rebuilding credit. After a discharge, you will have no debt, other than some debts which you may have chosen to continue paying, and a few things that cannot be discharged. That may actually improve your credit score. If you do the right things after filing, your credit score will go back up.

4 – It is wrong to file for bankruptcy.

Bankruptcy is a legal option, which is mentioned in the constitution, and is a part of our system of law. When large corporations (General Motors, Exxon, etc.) have financial problems, they consult bankruptcy lawyers for advice on their options. Individuals have similar rights. Prominent persons, including professionals, athletes, former Presidents, and entertainment stars have had to file.

In biblical times, debts were cancelled at regular intervals: “At the end of every seven years you shall grant a release. And this is the manner of the release: every creditor shall release what he has lent to his neighbor, his brother, because the Lord’s release has been proclaimed”. Deuteronomy 15:1-2.

The Bankruptcy Code is intended to provide a fresh start for honest debtors who are unable to pay their obligations. Certain types of debts cannot be discharged, for example, criminal restitution, and child or spousal support obligations.

5 – Bankruptcy Won’t help me with unpaid taxes.

This is partially true. Certain types of taxes cannot be discharged in bankruptcy. In some cases, this depends on how old the taxes are. An experienced bankruptcy attorney will look closely at the facts before advising a client about this.

Even where taxes cannot be discharged, they may be dealt with as part of a Chapter 13 Plan. For some clients, an installment plan or offer in compromise might be negotiated outside of bankruptcy.

* We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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