The Top 5 Most Common Myths About Bankruptcy

For many individuals, making the decision to file for bankruptcy may be difficult. There is a stigma associated with bankruptcy that is hard to ignore. However, there are also many myths floating around the process that may be holding individuals back when the process could benefit them. To learn the top five most common myths about bankruptcy, continue reading. If you are looking into filing bankruptcy, do not hesitate to reach out to our experienced New York bankruptcy attorney.

What Are the Most Common Myths About Bankruptcy?

1. Bankruptcy can prevent you from getting credit: It may be more difficult to secure a new line of credit within the first few months of filing, but you can typically secure a new line of credit relatively soon. There are certain situations that may prevent you from getting credit, but this is not a common occurrence.
2. You will lose your belongings: You are allowed to keep everything you can exempt by law during Chapter 7, which for most filers covers household goods, clothing, vehicle, and home equity. What is at risk is the property above those limits. During Chapter 13, you retain your assets outright, though the value of non-exempt assets establishes a floor on what your plan must pay your unsecured creditors.
3. You could go to jail if you file for bankruptcy: Filing for bankruptcy is a legal right, and no one is jailed for exercising this right. However, it is a federal offense to lie during bankruptcy, including concealing assets, providing false information under oath, or filing fraudulent documents. This may result in up to five years in prison. The distinction is simple: bankruptcy is legal; bankruptcy fraud is not.
4. You have to pay off all of your debts before filing for bankruptcy: You do not, nor should you, attempt to repay your debts before filing. Paying one creditor ahead of others in the months leading up to your case may result in what the Bankruptcy Code calls a preferential payment. If this happens, the trustee may “claw back” the money from whoever received it. The window is 90 days for standard creditors, and one full year for repayments to family members. If you are close to filing, you should discuss with your attorney before paying anyone.
5. You and your spouse will both have to file for bankruptcy: If you are married, you can choose to file alone, which is a common option. However, two things will still reach your spouse:
   1. Any debt your spouse took out with you or co-signed on, they will remain liable for
   2. You must disclose your spouse’s income when filing, even though they themselves are not filing.

Two More Worth Clearing Up

These come up almost as often, and neither appears on the usual list.

“Everyone Will Find Out”

Bankruptcy filings are public record. However, no one, other than the creditors you listed, will be notified of your filing. This means no announcements are printed in the paper, your employer will not be informed, and in practice, the people who learn about this are the ones you decide to tell. There are two situations in which your employer may find out: if your wages are being garnished, the automatic stay will halt this matter, so payroll will be informed. In Chapter 13, a judge may order your plan payments deducted from your wages, which your employer must administer.

“Only People Who Were Reckless With Money File”

The people who generally file for bankruptcy are overwhelmingly ordinary households hit by something they did not choose: loss of job, illnesses, divorce, or business failure. Very few filings are the result of overspending, and the ones that are generally involve someone paying for necessities with credit, long after the income stopped.

Contact Our New York Bankruptcy Law Firm

For the large majority of individuals, filing for bankruptcy is incredibly overwhelming. That is why it’s imperative to connect with an experienced attorney at the Law Offices of Allen A. Kolber, Esq. We understand that bankruptcy can be nerve-wracking, which is why we are committed to guiding you through this process. Contact us today to learn how we can assist you through these complex times.