Bankrutpcy Myths

Bankruptcy can be a scary step to take, especially because many people do not fully understand it. Most people have misconceptions about what is involved in filing bankruptcy. This page will dispel some of the most common bankruptcy myths and rumors. If you are considering filing bankruptcy, knowing more about these common bankruptcy myths can help you achieve peace of mind. The following are some of the biggest myths about bankruptcy:

Under the new bankruptcy laws, there is no longer a "Fresh Start Bankruptcy", and I will have to pay back all of my unsecured debts.

This is definitely not true. There was a change in the bankruptcy laws in October of 2005, but it did not eliminate Chapter 7 bankruptcy, also known as the "fresh start bankruptcy." What the change in the law did do was require all debtors to pass a "means test" that was implemented by Congress to qualify for a Chapter 7. Most people that qualified for a Chapter 7 prior to the law change will in all likelihood still qualify under the new law.

I will lose all my possessions if I file for bankruptcy.

This is absolutely false. In most instances you will be able to keep everything you own. Each state has its own set of exemptions (laws that outline what you are allowed to keep when you file for bankruptcy). California is one of the most liberal states when it comes to exemptions, which means most debtors are able to keep all their assets and still file for Chapter 7.

If I file for bankruptcy, I will not be able to get credit for 10 years.

While it is true that the fact that you filed bankruptcy stays on your credit report for 10 years, filing for bankruptcy will not prevent you from getting new credit. The negative consequences of filing for bankruptcy will initially impact your ability to obtain credit in that you can expect credit to be more expensive and limited in amount. However, your bankruptcy filing becomes less significant as more time elapses. Most people are quite surprised as to how soon after bankruptcy they can achieve building a solid credit score.

If I file for bankruptcy, I will never have good credit again.

Unfortunately, if you are considering filing for bankruptcy, in all likelihood your credit is already seriously damaged. Further, filing for bankruptcy will actually improve your credit score because the filing individual's debt-to-income ratio has gone to zero after filing. Usually, having a steady income and paying all bills on time will help you reestablish your credit in 2-3 years after filing.

I'll never be able to buy a house if I file for bankruptcy.

This is definitely not true. Filing for bankruptcy does not preclude you from purchasing a home. In fact, oftentimes filing a bankruptcy is actually taking a step in the right direction to owning a home. Remember, there are many criteria to consider when purchasing a home, such as your credit rating, income to debt ratio, and the down payment just to name a few. So by filing bankruptcy you may ultimately be able to strengthen your position in meeting these criteria. Think of how much you can save for a down payment if you weren't burdened by those monthly credit card payments!

If I am married, my spouse will also have to file.

It is not required that your spouse file when you file for bankruptcy, but if there are any debts that you are both liable for, the creditor may just go after the non-filing spouse once the debt has been discharged by the filing spouse.

Even after you file for bankruptcy, creditors can still contact and harass you for the money you owe.

This is undoubtedly untrue. The filing of a bankruptcy case, under any chapter of the Bankruptcy Code, triggers an "automatic stay" order prohibiting creditors from contacting you to collect on the money you owe.

Everyone will know that I filed for bankruptcy.

Although bankruptcy filings are public record, in most instances no one will ever know you have filed except your creditors. Unless you are famous or a large corporation and the filing is picked up by the media, there is a good chance that no one you know will ever find out.

Filing for bankruptcy is morally wrong.

Life doesn't always work out the way we plan. Many people are forced to deal with unforeseen obstacles, such as divorce, unemployment, or medical emergencies. Most people struggle with debt their whole life, which prevents them from progressing. The bankruptcy process is there to help people resolve their on-going financial struggles in order to allow the opportunity to move forward.

I can only file for bankruptcy once.

This is not true. You can file for a Chapter 7 every 8 years and there are different rules for Chapter 13s.

Find out if bankruptcy is right for you. Call KM Law Group at 866-500-3838 today to schedule a FREE consultation, or contact us online. Our firm serves clients throughout all of Southern California (Los Angeles, Orange, San Bernardino, Riverside, and San Gabriel Counties).