BANKRUPTCY MYTHS

FALSE. The bankruptcy process allows you to keep your property by placing an automatic stay, which prevents creditors from collecting on the property.   A large number of  cases result in no property lost to the debtor because they are “no asset” cases, which is made possible by exemptions that make some assets unreachable. While bankruptcy protects your property from being collected, it does not necessarily erase the debt or amount owed. If you want to keep your property in the long run you will need to continue to pay the debt. In the event you cannot afford to pay for your property, some of your property may be liquidated in order to pay the debt owed to the creditor.  Laws that allow you to keep your property vary by state and there are many factors that influence what property is allowed for collection. It is important you contact an experienced attorney to help guide you through the bankruptcy process. See our MS Property Exemptions page for more details about what property may be exempt during the debt elimination process. 

FALSE. Most people assume they will not be able to get credit or loans after filing for bankruptcy.  But the truth is many banks offer credit on a secured basis to individuals that may be marked as a higher risk. Credit offered on a secured basis is when the lender requires the individual to put a small amount of money in order to secure payment  in the future. Our economy depends on credit and many people find they can be approved for lines of credit within reason of what they can afford.  The most important thing is to demonstrate financial stability after bankruptcy. If you can prove that you have made consistent payments on a small line of credit or loan, you will be more likely to gain higher lines of credit quicker. Some mortgage companies offer loans to people within as little as 2 years after bankruptcy. 

FALSE. Bankruptcy actually protects your credit by eliminating debt and your delinquent payment history. After filing, you will begin rebuilding your credit right away. Failing to make payments and defaulting on loans without resolution will hurt your credit and mark you as a credit risk. Showing financial stability after bankruptcy improves your credit and can mark you as a better candidate for credit. Even though bankruptcy may stay on your credit for several years, you will begin rebuilding a fresh credit history right away.   

FALSE. The bankruptcy process places a stop to collection efforts of creditors. Creditors are prevented from collecting on the debt and must follow the plan outlined in the bankruptcy filing. In Chapter 13, a plan is developed that adjusts repayment terms of the debt. Once the Chapter 13 plan is approved by the court, the creditor must follow the terms and cannot attempt additional collection of the debt. Additionally,  Federal Bankruptcy laws prohibit the creditor from attempts to collect, possess and even contact the debtor once a filing has been made. If there is any breach of these laws, the creditor can face punitive charges. If you have any concerns about continued collection efforts, contact one of our attorneys to help answer your questions.

FALSE. Although bankruptcy is public record, most people find that no one knows unless they told them. Only those who hold highly regarded position would be at risk for others to find out they filed for bankruptcy. Creditors cannot release this  information to other companies and newspapers do not display this information. 

FALSE. Bankruptcy laws do not prevent anyone from filing more than once. There is no limit to how many times you file. However, you can only receive a limited amount of debt discharges in a specified time period. Chapter 7 bankruptcy discharges can be received once in every 8 years. A Chapter 13 discharge can be received every 2 years. Once you receive a dismissal notice and your case is dismissed, you can file again if needed.

FALSE. One of the biggest stressors in marriage and family life come from money troubles.  Bankruptcy can eliminate your debt and alleviate your stress over finances. When a family makes the decision together to take control of their finances, it leaves them feeling empowered. Voluntarily filing for bankruptcy allows a family to take control over their debt and take steps to return to a financially sound future.

FALSE. As a married couple, you may file separately or together.  Most often, filing together is the best option, especially if the debt is accrued on a joint credit line. For example, if a husband and wife share a credit card, mortgage or loan, it would be best they file together in order to protect both of their credit histories.  However, the court does not require a couple sharing a particular debt to file together.

FALSE. Over 1.5 million people filed for bankruptcy in 2010. There are many reasons people end up filing for bankruptcy, none of which makes them a bad citizen. Some may have lost their jobs in this tough economy, others became single or widowed families, while others may have medical problems that cost them more than they could afford.  There are times when good, honest, hardworking people struggle to make ends meet and fall victim to the pressures of financial instability. Bankruptcy is one option that can help get good people out of tough times.