Many people are scared to think about bankruptcy because much of what they hear is simply NOT TRUE! Some of the more common Bankruptcy Myths are:

Myth:              Under the “new” bankruptcy Law, there is no more bankruptcy.
Myth:              Everyone will know that you have filed for bankruptcy.
Myth:              You will lose everything you have.
Myth:              You will never be able to own anything again.
Myth:              You will never get credit again.
Myth:              Filing bankruptcy will hurt your credit for 10 years.
Myth:              It is hard to file for bankruptcy.
Myth:              Creditors will still harass you after you file for bankruptcy.
Myth:              There is a minimal amount of debt required to file for bankruptcy.
Myth:              Bankruptcy is Immoral.

 

Myth:             Under the "new" Bankruptcy Law, there's no more bankruptcy
False. You can still do just about everything under the new laws that you could do under the old laws. Most people seeking bankruptcy will not notice any difference. There is more paperwork, higher filing fees, and more steps involved with the new laws. But in some ways, the new laws have actually increased the benefits of filing bankruptcy. However, bankruptcy is not something you should try to do by yourself. Working with a good bankruptcy attorney is always recommended.
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Myth:             Everyone will know that you have filed for bankruptcy
False. 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 and attorney. Bankruptcy is public record; however, due to the massive number of filings each month, very few publications have the space, the manpower or the inclination to run all of them. In all likelihood, the chances of people knowing you have filed for bankruptcy is pretty slim.
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Myth:             You will lose everything you have.
False. The fact is that most people who file bankruptcy don't lose anything except their debts.

In Alabama there are exemptions to protect such things as your household goods and furnishings, tools of trade, retirement plans, the cash value in life insurance and personal injury claims, and more. There is even a $3,000 exemption that can be applied to whatever you want. In those situations where you have more property than can be protected by available exemptions, there is Chapter 13. In a Chapter 13, you keep everything you have in exchange for paying your creditors some or all of what they are owed.

Filing bankruptcy does not generally wipe out liens. Therefore, if you want to keep a car, truck, home or business equipment that is pledged as collateral for a loan, you need to keep your payments current. If the payments are current and there's no equity (or you can exempt the equity), you will be able to keep these items.
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Myth:             You will never be able to own anything again
False. You can buy whatever you want and can afford. Many post bankruptcy people have received pre-approved car loans and credit cards as soon as they receive their discharge, and many Chapter 13 clients with homes are able to refinance while in their bankruptcy. Assuming they don't run into new credit problems after their bankruptcy, many people are able to qualify for a regular FHA mortgage at regular interest rates a couple years after their discharge.
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Myth:             You will never get credit again.
False.  It is true that your credit will be adversely affected by filing bankruptcy.  The fact is that your filing will be reflected on your credit report for a period of ten (10) years from the date your petition is filed.  However, it is important to recognize that your underlying financial problems are the real cause of your negative credit - not the bankruptcy.

Myth:             Filing bankruptcy will hurt your credit for 10 years
False.  The fact is that your filing will be reported on your credit report for a period of ten (10) years from the date your petition is filed.  However, just because something is reported on your credit report doesn't necessarily mean it will have a negative effect on your credit standing. In fact, most people's credit scores improve after filing.  Further, chances are your credit is most likely already less than perfect if you are considering bankruptcy.  With a bad credit report, you really have no credit for bankruptcy to hurt.

What many people fail to realize is that bankruptcy can be the first step in reestablishing your credit. Bankruptcy will be on your credit report for a period of ten (10) years. However, any negative or bad information currently on your credit report will stay on your credit report for a period of seven (7) years and that time period does not start until you pay off your creditors in full or it is “written off” as a bad debt. As a practical matter, your credit will be affected for a period of at least seven (7) years without doing anything…and perhaps more. Therefore, bankruptcy may be the first step in reestablishing your credit because it provides a beginning point for you to obtain a fresh start. Further, filing bankruptcy gets rid of debt. Eliminating debt puts you in a position to handle more credit, and this makes you look more attractive to would-be lenders. Many people who have received a discharge on their bankruptcy find themselves receiving offers for new credit cards, car loans, etc. and some people have even been able to refinance their homes in a short time after their discharge. In many cases, the damage done to credit isn't nearly as bad as expected. Over the long run, obtaining a credit score high enough to make you eligible for very competitive rates isn't out of the question.
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Myth:             It's really hard to file for bankruptcy
False.  It is not hard to file for bankruptcy…at least not with the help of a bankruptcy attorney. Although you may file bankruptcy without the help of an attorney, an attorney will assist you in filing the proper papers and help you keep as many of your assets as possible, while at the same time helping you to avoid any possible charges of fraud.
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Myth:             Creditors will still harass you after you file for bankruptcy.
False. Once you have filed bankruptcy, the Bankruptcy Court issues an Automatic Stay.  That means no more phone calls, no more collection letters, no more lawsuits, no repossessions and no foreclosures! The Automatic Stay prohibits your creditors from taking any collection actions against your or your assets. After you file bankruptcy, the creditor is not even allowed to talk to you. In addition, the creditor must stop any collection attempts already started. The Automatic Stay puts the full weight of the United States Courts to work for you!  If a creditor violates the Automatic Stay, you have the right to bring the creditor before the Court for Contempt of Court, and to be compensated accordingly. Simply put, once you file for bankruptcy, creditors must leave you alone.
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Myth:               There is a minimum amount of debt required to file for bankruptcy
False. If you really wanted, you could file even if you were only a few hundred dollars in debt. To some people with higher incomes, a small amount isn't worth filing bankruptcy; however, for some people with little to no income at all, there is no choice. Speaking to a bankruptcy attorney who can help you decide is a good place to start.
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Myth:              Bankruptcy is Immoral
Every other statement addressed on this “Bankruptcy Myths” page has been a statement that is simply false.  Bankruptcy is Immoral – that is a statement that this site will not categorize as simply “true” or “false.”  Instead, what the Bible and the United States Constitution have to say about bankruptcy is outlined below.

People are generally expected to pay their debts (Leviticus 25:39).  However, many studies have shown that the average American family is only three weeks away from personal bankruptcy.  Should our reaction to this statistic be one of condemnation or one of compassion?

Our founding fathers recognized the importance of bankruptcy. Specifically, Article I, Section 8, of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies.” Under this grant of authority, Congress enacted the “Bankruptcy Code” in 1978. The bankruptcy laws and procedures we have today provide relief and give people who are over-their-head in debt a fresh start.

However, long before the adoption of our Constitution, the origins of bankruptcy were firmly rooted in early Judeo-Christian societies. The foundations of today’s bankruptcy laws can be found in the “Sabbatical Year” and “Jubilee Year” and the forgiveness of debts found in Leviticus 22, Deuteronomy 15 and other parts of the Bible. In fact, the cancellation of debt in the Old Testament happened automatically every few years – without the need for any formal process. “At the end of every seven years you shall grant a release. And this is the manner of the release: every creditor shall release what he has lent to his neighbor, his brother, because the Lord’s release has been proclaimed.” Deuteronomy 15:1-2. Further, early Judeo-Christian societies viewed debt as a form of bondage or slavery (Proverbs 22:7). In order to free the slave from his bondage, Jewish Law stated that at the end of the sixth year “in the seventh year you shall let [your Hebrew slave] go free from you. And when you send him away free from you, you shall not let him go away empty-handed; but you shall supply him liberally from your flock...” Deuteronomy 15:12-14. Likewise, modern bankruptcy laws provide today’s debtors with the opportunity to gain a fresh start and even allows the debtor to keep certain property to help him avoid falling back into debt that he cannot manage (“you shall not let him go away empty-handed; but you shall supply him liberally from your flock…”). Further, Jesus used the illustration of forgiveness of a financial debt to teach about God's forgiveness and the requirement that mankind forgive (Matthew 18:21-35 and Luke 7:36-50). “And when they had nothing with which to repay, he freely forgave them both” (Luke 7:42). Finally, in the Lord’s Prayer, the disciples are taught to ask God to “forgive us our debts, as we also have forgiven our debtors” (Matthew 6:12).

It should also be noted that a guiding principle of today’s bankruptcy law is that a person who files for bankruptcy must have “clean hands.”  Therefore, a debtor cannot avoid the payment of all types of debt.  For example, a debtor may not be freed from debts involving fraud, drunk driving or deliberate wrongdoing nor can child support or alimony be avoided through bankruptcy.
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