Common Bankruptcy Myths You Should Know Before Filing

There is a lot of misinformation about bankruptcy floating around, and debunking these myths can help clear the air and make your decision one that is based on the facts rather than fallacies. 

Myth #1: The process of filing bankruptcy is as simple as filling out a few forms.

There is nothing about the bankruptcy process that is simple.  It is a complicated, expensive and often long legal process.  While bankruptcy is certainly a process that can help consumers who have too much debt, it is also a very serious legal endeavor that has potential for future litigation.  All bankruptcy forms are filed in Federal court and are looked over carefully by a trustee whose job is to liquidate your assets and pay your creditors, if possible.  Even if you claim exemptions, your bankruptcy trustee has the power to object to the assets you use for these exemptions. 

Myth #2: I will lose all of my property if I file for bankruptcy.

If you file a chapter 7 bankruptcy, your non-exempt property will be subject to being sold and liquidated to pay your creditors.   However, your exempted property is yours to keep and cannot be liquidated in the bankruptcy process.  When you file bankruptcy, your bankruptcy trustee will oversee your estate and make a decision regarding the property that is non-exempt.  In many cases, the cost of liquidating non-exempt assets is more than their worth, so it might be the case that you get to keep everything you currently own.  Many people who have filed for bankruptcy haven’t lost a single piece of property or asset in doing so.   The amount and type of exemptions vary depending on whether you own your own home, are married and other factors.  Consult a qualified bankruptcy attorney for your specific exemptions, but ninety percent of our clients get their fresh start while keeping their home and maintaining their vehicle.

Myth #3: I can never qualify for credit again.

It is often the case that as soon as a bankruptcy is filed, debtors are swamped with credit offers.  This is surprising to some but reveals a truth about the myth that once you file bankruptcy, you can’t qualify for credit again—it’s simply a false statement.  While a bankruptcy can stay on your credit for 10 years if you file a Chapter 7, the ability to borrow money is largely based on your debt-to-income ratio.  If a bankruptcy reduces or eliminates your debt, then it’s even possible that your FICO score can be higher after a bankruptcy than it was before it.