The Top 10 Misconceptions About Bankruptcy

Misconception #1: I will lose my house and car if I file bankruptcy.

Most people keep their house and cars when they file bankruptcy. In Arizona, you are allowed up to $414,800 of equity in your house and up to $15,600 of equity in one car for a single person and two cars with $31,200 of equity apiece for married couples.

Misconception #2: When I file bankruptcy someone from the court will come to my house and go through my possessions.

Generally no one will come out to your house. You simply list your possessions on your bankruptcy schedules under oath.

Misconception #3: If I file bankruptcy, I will never be able to finance a car again.

Many of my clients actually find it easier to get financed for a car after they receive a Chapter 7 discharge. This is because their debt to income ratio has improved and the car lender knows that the individual cannot file bankruptcy again for at least 8 years.

Misconception #4: If I file bankruptcy, I will never be able to get another credit card.

Clients inform me that they have been inundated with credit card offers once they received their Chapter 7 discharge. This is important because many people need credit cards for work or booking reservations.

Misconception #5: Filing a bankruptcy is easy. All I need to do is go down to the court and file a couple of papers.

The legal system is a complex maze of rules, laws, and regulations. The creditors have aggressive legal counsel to fight you. If you want to be successful in this process, then you ought to get the best possible legal counsel to guide you through the system.

Misconception #6: When I file bankruptcy all my debts get erased.

Not necessarily. Child support does not get wiped out, along with some types of tax, students loans, and criminal restitution. You must keep paying on secured debt that you intending to keep; such as a house or car.

Misconception #7: To file bankruptcy, I must be delinquent on all my debts.

I often have clients that file bankruptcy who are current on all their debts. However, they see the writing on the wall. Often times they are transferring debts from one credit card to another and want to end the vicious cycle of debt. Other times a change in income forces a measure to eliminate debt.

Misconception #8: If I file bankruptcy I will have to go to court where my creditors and a judge will grill me over the coals.

Although you do need to attend what is called a meeting of creditors, creditors rarely actually show up for the meeting. I attend the meeting with you and the court appointed trustee has only simple, straightforward questions for you.

Misconception #9: If I file bankruptcy, I have given up on my dreams and my chances of becoming a success.

What do former U.S. President Ulysses S. Grant, Burt Reynolds, Anna Nicole Smith, Larry King, Kim Bassinger, and Rush Limbaugh all have in common? You guessed it. They all have filed for bankruptcy in the past. There is no shame in coming to the realization that you are in over your head and doing something about it. You can still go on to do great things, especially without the huge burden of carrying too much debt on your shoulders.

Misconception: #10: I will lose my job if I file bankruptcy.

This is not true. Under the bankruptcy code, an employer cannot discriminate because of a bankruptcy filing.