Myth #1: Bankruptcy will destroy your financial life for 7 to 10 years

This is FALSE.  In fact, the reverse is true. Individuals exiting bankruptcy will be able to rebuild their credit rapidly after they are discharged from their bankruptcy case.  After bankruptcy, people are an excellent credit risk because typically, people coming out of bankruptcy have little to no debt.  Moreover, they do not want to file a bankruptcy again.  Sure, the bankruptcy will be reported on their credit report for 7 to 10 years, but our clients have been able to buy houses and cars at good interest rates while they were in an active bankruptcy case and even immediately after they were discharged.  This myth has been perpetuated by credit card companies that do not want people to take advantage of the federal law designed to assist them when they hit hard times.

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Myth #2: If you file bankruptcy, you will lose your house and car

Bankruptcy is not designed to devastate you. It is designed to help those who have found themselves in financial distress, for whatever reason, create a better financial future. Individuals in bankruptcy need to have a place to live and transportation to go to work.  Bankruptcy laws are designed to protect these things.  You will be able to keep your house and you will be able to keep your car.  You still have to pay for them, but if you do so, you will be able to keep them.

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Myth #3: Debt Consolidation is a better alternative

Bankruptcy is a tool that has been used by many people and businesses to reorganize and eliminate debt.  We have many clients who bought into the promises that a debt consolidation company made.  In particular, the debt consolidation will promise to settle debts for pennies on the dollar.  No company can make this promise.  Our clients believed them and paid them.  The debt consolidation company took their money (much like in a Chapter 13 bankruptcy) and did not negotiate with the creditors until they had been paid the consolidation company’s full fee (read the fine print of the contract).  By this point, our clients were being sued and garnished.  They had to file bankruptcy to resolve their financial situation only at this time, they had lost the money they paid to the debt consolidation company for doing nothing and they had lost more sleep with worry.  Had they consulted with a bankruptcy attorney first, they would have known that debt consolidation companies cannot guarantee results while a bankruptcy attorney can.

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Myth #4: Being in a Chapter 13 bankruptcy for 3 to 5 years means I am stuck

If you are in the unfortunate circumstances where you need to file bankruptcy you are already stuck in a debt cycle that is not going to get better unless you win the lottery.  If you were offered a guarantee that by making payments on your debt for 3 to 5 years would get you out of that cycle, you would do it especially if your Chapter 13 Plan payment was less than your minimum monthly credit card payments.  A Chapter 13 bankruptcy is a guarantee that you are done with your credit card debt at the end of your Chapter 13 Plan (which can not be longer than 5 years.  During your Chapter 13 bankruptcy, if you need a new car, house or need to sell your property, you may do so and obtain credit during that time so long as you get approval to do so.  As long as your request to sell or buy property is reasonable, you will be given permission to do so.  In short, you are not stuck and you will be able to do what you need to do.

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Myth #5: You should not file bankruptcy because it will hurt your credit score

If you are anticipating you will be in or are already in the unfortunate circumstances where you need to file bankruptcy, your credit score is already decreasing.  Bankruptcy wipes it clean so you can rebuild it.  Rebuilding credit is actually easy and hinges on making timely payments on different types of debt.  Many times a credit score can be raised within 90 days of discharge from bankruptcy.  Also, your credit score only matters if you are obtaining new credit.  If you already have a house and a car, you do not need new credit in the immediate future.  If you need new credit after bankruptcy, you will be able to get it as you are a good credit risk given you will have little to no debt.

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Myth #6: Everyone will know if I file bankruptcy

Typically, the only people that will know you file bankruptcy are the ones you tell.  While a bankruptcy is a public record, those records are not easily accessible.  If someone from the general public wanted to know if you filed bankruptcy, it would take some sleuthing which is not impossible but requires motivation.  In short, there is no publication requirement for bankruptcy filings as there was in the past so bankruptcy filing information is not readily accessible.

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