Myths Surrounding Bankruptcy

by | Nov 23, 2022 | Chapter 13, Bankruptcy, Chapter 7, Client Resources

What Is a Bankruptcy Myth?

 

Are you worried about the consequences of filing for bankruptcy? When researching whether bankruptcy is right, many people come across half-truths and myths on the internet that confuse them and lead them astray. Although bankruptcy has some downsides, most people’s concerns regarding bankruptcy are usually based on bankruptcy myths. 

For example, many people assume that the bankruptcy court will take all their belongings and they will lose everything if they file for bankruptcy. However, most people who file for bankruptcy don’t lose everything. In fact, depending on the state they are living in, they may be able to exempt a lot of personal property and assets from the bankruptcy process. In other words, the bankruptcy law will protect most of their assets.

In reality, when you decide to file for bankruptcy, there are typically more advantages than disadvantages. If you are struggling with bankruptcy myths and can’t tell what’s true and what’s not, an experienced bankruptcy attorney can be of assistance.

Our bankruptcy attorneys at the Law Offices of Wenarsky & Goldstein, LLC, are seasoned in various legal fields, including bankruptcy.  They can guide you through your options and different types of bankruptcy filings, as well as explain how bankruptcy works.

Contact our law firm today if you have questions.

Most Common Bankruptcy Myths

To empower people to make the right decision, we confront some of the most powerful myths surrounding bankruptcy.

Myth #1: Bankruptcy Permanently Ruins Your Credit

Although your credit will definitely take a hit, the reality is that many people bounce back from bankruptcy after a couple of years. Of course, everything depends on whether you can build credit effectively. If you continue to default on debt, then you’ll never get out of a hole.

Many people begin the credit repair process by taking out a secured credit card or an unsecured card if they can get one. Use it responsibly—never go over the limit, and pay it off in full each month. After 12-18 months, you can ask for a credit limit increase and continue to use it responsibly. After two years, many people have pulled their scores up into the 700s.

Myth #2: You Can Eliminate All Debt in Bankruptcy

Not exactly. You can eliminate certain debts using bankruptcy. For example, you can typically wipe:

  • Credit card debt
  • Personal loans
  • Medical debt
  • Some court judgments
  • Old tax debt

However, you can’t get rid of everything. Secured loans, for example, are backed by an asset. Your car loan is an example. Your lender’s right to repossess the vehicle isn’t changed by your bankruptcy filing, so you can lose the car. The same is true of a home mortgage.

Myth #3: You Can’t Discharge Student Loans

There’s some truth to this. Discharging student loans is very hard. Still, it’s possible if we can convince a judge that you’ve made a good-faith effort to pay back the loans but can’t maintain a minimal standard of living.

Myth #4: You Can Only File Bankruptcy if You Have No Income

Most people who file are working. It’s simply unrealistic for them to pay back all their debt, so they meet with us to discuss whether bankruptcy is right for them.

There are really two consumer bankruptcies: Chapter 7 and Chapter 13. To qualify for Chapter 7, you need to pass a means test. This will look at your income and compare it to the median income for your state. If you are at or below the median, you can file. If you’re over, we need to take a closer look at your expenses.

Myth #5: You Can Only File Bankruptcy if You Have No Assets

You can file even if you own a home, car, vacation properties, and other assets. These do not prevent you from filing.

There is an important consideration, however. When filing for Chapter 7, you need to check if your property is exempt. If not, then the trustee can sell it and use the proceeds to pay your creditors.

Every state has its own exemptions, and clients in New York and New Jersey can choose their state’s exemptions or the federal exemptions. In New York, for example, the following are exempt:

  • Some equity in your home
  • Some equity in a car
  • Retirement accounts
  • Some personal property

Myth #6: You Can’t Get a Mortgage after Bankruptcy

Again, there is a kernel of truth here. It’s true you probably can’t immediately get a mortgage after filing for bankruptcy. However, we’ve seen clients who commit to rebuilding their credit qualify for mortgages after two years.

 

Filing on Your Own: Is That a Good Idea? 

 

You have this option, but filing without a lawyer’s help, you may face huge risks:

  • You might file the wrong type of bankruptcy and lose assets.
  • You might fail to disclose debts or assets, so the judge dismisses your petition.
  • You could face an investigation for bankruptcy fraud if you intentionally fail to report assets.
  • You have to start the process all over again or possibly wait years to file again.

We will guide you throughout the entire process, answering your questions along the way.

 

Contact Our Bankruptcy Lawyer with Questions

 

Bankruptcy myths hold many people back from filing for bankruptcy. To get the facts about bankruptcy and learn about your options, reach out to our law firm.

At the Law Offices of Wenarsky & Goldstein, LLC, we help people file for bankruptcy relief under the Bankruptcy Code. We believe in empowering our clients to make the choices that work for them. To that end, we offer a consultation where we can answer any questions you have. Please call us today, to learn more about your legal options.

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