Blog sponsored by Bankrupt-Law.com


By Bankrate.com

Like most big, bad scary things, bankruptcy has a reputation based on a few
tidbits of truth and lots of embellishment. It's not nearly as frightening
once you know the truth.

12 bankruptcy myths

With a mind toward declawing the monster, here are a dozen misconceptions
about bankruptcy:

1.Everyone will know I've filed for bankruptcy.
2.All debts are wiped out in Chapter 7 bankruptcy.
3.I'll lose everything I have.
4.I'll never get credit again.
5.If you're married, both spouses have to file for bankruptcy.
6.It's really hard to file for bankruptcy.
7.Only deadbeats file for bankruptcy.
8.I don't want to include certain creditors in my filing because it's
important to me to pay them back someday and if the debt is discharged, I
can't ever repay them.
9.Filing for bankruptcy will improve my credit rating because all those
debts will be gone.
10.You can't get rid of back taxes through bankruptcy.
11.You can only file for bankruptcy once.
12.I can max out all my credit cards, file for bankruptcy and never pay for
the things I bought.

1. Everyone will know I've filed for bankruptcy.
Unless you're a prominent person or a major corporation and the filing is
picked up by the media, the chances are very good that the only people who
will know about a filing are your creditors. While it's true that bankruptcy
is a public legal proceeding, the number of people filing is so massive that
very few publications have the space, the manpower or the inclination to run
all of them.
2. All debts are wiped out in Chapter 7 bankruptcy.
You wish. Certain types of debts cannot be discharged (erased). They include
child support, alimony, government-issued or government-guaranteed student
loans, and debts incurred as the result of fraud. It's also very unlikely
that a judge will discharge legal settlements you've been assessed, such as
money you've been ordered to pay to someone who sued you.
3. I'll lose everything I have.
This is the misconception that keeps people who really should file for
bankruptcy from doing it, says Chris Viale, chief operating officer of
Massachusetts-based Cambridge Credit Counseling Corp.
"They think the government will sell everything they have and they'll have
to start over in a cardboard box," Viale says.
While the bankruptcy laws vary from state to state, every state has
exemptions that protect certain kinds of assets, such as your house, your
car (up to a certain value), money in qualified retirement plans, household
goods and clothing.
"For most people, they'll pass through a bankruptcy case and keep everything
they have," says John Hargrave, a bankruptcy trustee in New Jersey. If you
have a mortgage or a car loan, you can keep those as long as you keep making
the payments (like the rest of us).
4. I'll never get credit again.
Quite the contrary. It won't be long before you're getting credit card
offers again. They'll just be from subprime lenders that will charge very
high interest rates. "There are innumerable companies that will provide
credit to you," says California bankruptcy attorney and trustee Howard
Ehrenberg. "I don't advise any of my clients to run out and run up the bills
again, but if someone does need an automobile, they can go and will be able
to get credit. You don't have to go underground or something to get money."

However, if you're planning to buy a house or a car, you might want to do
that before you file. Those loans will be tough to get and the higher
interest rate on such a large purchase would make a significant impact on
your payments. Also, if you have a credit card with a zero balance on the
day you file for bankruptcy, you don't have to list it as a creditor since
you don't owe any money on it. That means, you might be able to keep that
card even after the bankruptcy.
5. If you're married, both spouses have to file for bankruptcy.
Not necessarily. "It's not uncommon for one spouse to have a significant
amount of debt in their name only," Hargrave says. However, if spouses have
debts they want to discharge that they're both liable for, they should file
together. Otherwise, the creditor will simply demand payment for the entire
amount from the spouse who didn't file.
6. It's really hard to file for bankruptcy.
It's really not. You don't even technically need an attorney. However, it's
not recommended to go through the procedure without one.
7. Only deadbeats file for bankruptcy.
Most people file for bankruptcy after a life-changing experience, such as a
divorce, the loss of a job or a serious illness. They've struggled to pay
their bills for months and just keep falling further behind.
8. I don't want to include certain creditors in my filing because it's
important to me to pay them back someday and if the debt is discharged, I
can't ever repay them.
Bless you for even thinking about such a thing. You're no longer obligated
to repay them, but you always have that opportunity. If your conscience
won't let you sleep nights because you didn't pay your debts, there's
nothing in the bankruptcy code that prevents you from doing that once you're
back on your feet. But bankruptcy is an all-or-nothing deal, so you have to
include all your creditors in the petition.
9. Filing for bankruptcy will improve my credit rating because all those
debts will be gone.
That sounds like an ad for a bankruptcy lawyer trolling for clients. Filing
for bankruptcy is the worst 'negative' you can have on your credit report.
Unlike other negatives, which stay on your report for seven years,
bankruptcy can be there for 10 years.
10. You can't get rid of back taxes through bankruptcy.
Generally speaking, this is true. However, there is such a thing as tax
bankruptcy, says tax educator Eva Rosenberg, known on the Web as Tax Mama.
To get a shot at it, you have to file all your returns and the taxes owed
need to be at least three years old.
11. You can only file for bankruptcy once.
You can file for bankruptcy more than once, but the bankruptcy law that went
into effect in October 2005 lengthened the required wait between filings.
You can only file for Chapter 7 bankruptcy once every eight years. You have
to wait two years to repeat a Chapter 13 filing and four years between a
Chapter 7 and a Chapter 13 case.
Of course, that doesn't make it a good idea.
"Multiple bankruptcies are really bad," Rosenberg says. "Many people get
into the habit of once they've done it, it becomes a way of life. This is
not good for your karma." Or your credit rating.
12. I can max out all my credit cards, file for bankruptcy and never pay for
the things I bought.
That's called fraud and bankruptcy judges can get really cranky about it.
The trustee in your case will review all your purchases right before your
filing. The trustee knows what to look for.

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