Myth 1: I will lose everything I own.
FALSE. The bankruptcy process allows you to keep your property by placing an automatic stay, which prevents creditors from collecting on the property, such as a wage garnishment or bank levy. The majority of Chapter 7 cases result in no property lost to the debtor because they are “no asset” cases, which is made possible by exemptions that make some assets unreachable to your Trustee. While bankruptcy protects your property from being collected, it does not erase secured debt. If you want to keep your secured property, usually a home or vehicle, you will need to continue to pay the debt. There are many factors that influence what property is allowed for collection. California has two sets of bankruptcy exemptions. It is important you contact an experienced attorney to help guide you through the bankruptcy process, especially regarding exemptions that allow you to retain the maximum amount of your property.
Myth 2: I will never be able to town property.
FALSE. Most people assume they will not be able to get credit or loans after filing for bankruptcy. But the truth is many banks and car dealers offer credit on a secured basis to individuals after a bankruptcy discharge. Since you cannot receive a Chapter 7 discharge for eight years after a prior Chapter 7 discharge, it is actually easier for some individuals to obtain credit following a successful bankruptcy. The most important thing is to demonstrate financial stability after bankruptcy. If you can prove that you have made consistent payments on a small line of credit or loan, you will be more likely to gain higher lines of credit quicker. For instance, starting with a secured credit card or gas credit card usually helps establish credit.
Myth 3: Filing for bankruptcy will ruin my credit.
FALSE. Bankruptcy actually helps your credit by eliminating most unsecured debt. After filing, you can begin rebuilding your credit right away. Failing to make payments and defaulting on loans without resolution will hurt your credit and mark you as a credit risk. Showing financial stability after bankruptcy improves your credit. Even though bankruptcy may stay on your credit for up to 10 years, you will begin rebuilding a fresh credit history right away.
Myth 4: I will still be harassed by creditors.
FALSE. The bankruptcy process places a stop to collection efforts of creditors due to the automatic stay that is immediately imposed on your creditors when your bankruptcy is filed. Creditors are prevented from contacting you and also from collecting on the debt. In a Chapter 13, a plan is developed that adjusts repayment terms of the debt. Once the Chapter 13 plan is approved by the court, the creditor must follow the terms and cannot attempt additional collection of the debt. If there is any breach of the automatic stay, the creditor can face punitive charges.
Myth 5: Everyone will know I filed for bankruptcy.
FALSE. Although bankruptcy is public record, most people who file find that no one knows of the filing. Only those who hold a highly regarded position would be at risk for others to find out they filed for bankruptcy. Newspapers do not typically display this information.
Myth 6: If I file for bankruptcy now I can never file again.
FALSE. Bankruptcy laws do not prevent anyone from filing more than once. There is no limit to how many times you file. However, Chapter 7 bankruptcy discharges can be received once in every eight years. A Chapter 13 discharge can be received every two years if you received a previous Chapter 13 discharge or after four years from a previous Chapter 7.
Myth 7: I will cause my family more trouble by filing for bankruptcy.
FALSE. One of the biggest stressors in marriage and family life come from money troubles. Bankruptcy can eliminate your debt and alleviate your stress over finances. I am often told by clients that filing for bankruptcy was the best decision for them and their family. Voluntarily filing for bankruptcy allows a family to take control over their debt and take steps to return to a financially sound future.
Myth 8: If I file for bankruptcy, so must my spouse.
FALSE. As a married couple, you may file separately or together. Most often, filing together is the best option, especially if the debt is accrued on a joint credit line. For example, if spouses share a credit card, mortgage or loan, it would likely be best they file together in order to protect both of their credit histories. However, the debt might be from before marriage or for a business run by only one spouse, leading to a decision for only one spouse filing.
