Too often, people hesitate to file for bankruptcy because they’re worried it will result in consequences that may not exist. This week we bust six common bankruptcy myths!
Filing Bankruptcy Myths
Misconception: Even though it’s been almost 10 years, some people believe that changes in laws in 2005 made it harder to file for bankruptcy.
Fact: While some legislators did want to make it more difficult to file for bankruptcy, the changes in the bankruptcy code actually affected very little. Filing for Chapter 7 does now require either having income below the median in your state or passing a means test that measures your disposable income. But even if you don’t qualify for Chapter 7, you still have the option of filing under Chapter 13.
Misconception: I can’t file for bankruptcy if I’ve been sued for outstanding debts.
Fact: It doesn’t matter if a creditor has filed a lawsuit against you. Once you file, all activities to collect debts—including lawsuits, foreclosures, levies and collection calls—must stop. At that point, although your creditors have the right to be heard, the court decides how your debts will be settled.
Bankruptcy Myths about Discharging Debts
Misconception: Medical bills can’t be discharged.
Fact: Medical bills are treated the same as credit card and personal loan debt. There is no special protection for these bills under bankruptcy. Categories of debt that cannot be discharged include federal taxes, child support, alimony and (very often) student loans.
Misconception: I can keep my car and house and do not have to make additional payments after bankruptcy.
Fact: You aren’t going to get the best of both worlds in bankruptcy! Your house and car may be exempt from liquidation in Chapter 13, but if you would like to keep the property, you must either continue to make payments or make a lump sum payment equal to the current value of the property.
Misconception: I won’t be able to borrow again after bankruptcy.
Fact: Too many people think bankruptcy means no one will risk loaning them money again. It’s true you may have to wait a few years to obtain a mortgage, you’ll probably need a larger down payment, and no matter what you borrow money for, you will pay higher interest rates. But credit will still be available to you! Do keep in mind that filing Chapter 13 requires you to obtain the court’s permission before getting a loan during the three to five years you are repaying your old debts.
Misconception: I could lose my current job if I file for bankruptcy.
Fact: Federal law prohibits your employer from taking action against you because of a bankruptcy filing. If you believe this has happened to you, contact our employment attorneys here!
These are the main bankruptcy myths you should be aware of. Don’t trust everything you’ve been told or led to believe about bankruptcy. If you have questions about filing for bankruptcy, contact our bankruptcy attorneys here for a free consultation.