Common Bankruptcy Myths Busted
Myth 1:
The new bankruptcy law means you cannot file chapter 7 anymore or cannot get rid of credit card debts. NOT TRUE: I am sure many of you have heard the news stories that bankruptcy relief is severely limited under the new law. Actually, almost everyone that could file a bankruptcy under the old law can still file under the new law. It is more complicated, there is more paperwork, and credit counseling and debtor education classes need to be completed, but you most likely will be able to file bankruptcy.
Myth 2:
If I file bankruptcy I will lose my house, car, personal belongings, etc. NOT TRUE: In most cases you will not lose anything in the bankruptcy. You will be entitled to “exempt” or protect most if not all of your property and belongings under state or federal exemption laws. For example, in Oregon you can protect up to $40,000 of equity in your home ($50,000 if married and filing a joint case), $3,000 of equity in your car (a total of $6,000 for joint filers), $1,800 of clothing and jewelry, and $3,000 in household goods and furniture. There are many other exemptions that apply to other types of property. Moreover, in most case we now use the Federal Bankruptcy Exemptions, which have higher exemption limits than the Oregon exemptions. I will perform a complete analysis of your property and exemptions so you will know if anything you own is at risk. In cases where you do have non-exempt assets you may be able to use a chapter 13 to keep your property. If you have loans against your property such as a home or car, you must continue paying these loans in order to keep the property.
Myth 3:
After filing bankruptcy I will not be able to get credit for 10 years, NOT TRUE: A bankruptcy will be reported on your credit report for 10 years, but you will be able to obtain credit much sooner. In fact, many people can finance a car during or shortly after the discharge of their case. And many people will have substantially improved credit scores in 2 to 4 years. Many of my clients have financed home loans just over 2 years after their bankruptcy discharge. You also will probably receive unsolicited credit card offers and offers to finance cars shortly after your case is filed and again after your discharge.
Myth 4:
It’s really hard to file for bankruptcy especially under the new law. NOT TRUE (if you use an experiend bankruptcy attorney). It can be confusing and difficult to file bankruptcy on your own, but in the hands of an experienced lawyer, filing a bankruptcy in the District of Oregon can be smooth and hassle free. I will ask for a variety of documents to help me prepare your case. I will take care of all the paperwork and calculations needed to make your case a success.
Myth 5:
Only bad people or deadbeats file for bankruptcy. ABSOLUTELY NOT TRUE: Almost everyone I have ever met as a client has been a decent, hard-working person that got into financial trouble due to a job loss, health problems, relationship issues or they simply made some bad decisions that they could not recover from. There is no "type" of person that files bankruptcy, financial issues don't spare any type of person. I have filed for bankruptcies for people aged 18 - 90 years old, as well as very successful CEOs and business owners. No one is exempt from hitting a hard time.
Myth 6:
Filing bankruptcy will hurt your credit rating: Sometimes this is true but usually it is NOT TRUE. A bankruptcy can often help you to rebuild your credit because your bad debts will be discharged and you will be a better credit risk to many lenders. Think of a bankruptcy as a dividing line between old bad credit that is already on your credit report and new good credit that will eventually be on your credit report. If you do nothing, the bad credit just keeps getting reported on your credit report again and again. However, a bankruptcy stops this cycle and allows you to put new good credit on your credit report.
Myth 7:
You cannot get rid of taxes if you file bankruptcy. NOT TRUE: Generally, if the tax is an income tax that was filed on time and was due more than three years ago, you can eliminate the tax debt entirely. Even if the tax cannot be eliminated, you may be able to use a chapter 13 to pay back the tax debt over a 3-5 year period, with no interest. Determining whether or not taxes can be eliminated (discharged) can be tricky, especially if you have had a prior bankruptcy or an offer in compromise. It is best to talk with an experienced bankruptcy attorney so you will know if bankruptcy can help you.
Myth 8:
You can only file bankruptcy every 7 years. Unfortunately, the new bankruptcy law increased the time between filing chapter 7 cases to 8 years. However, there is hope: You may be able to file a chapter 13 shortly after a chapter 7. This is complicated, so discuss this matter with your bankruptcy attorney.
Myth 9:
You can pick and choose which debts to list on your bankruptcy and leaving a debt off your bankruptcy means it is not included. BOTH NOT TRUE: You must list all debts, even those you want to keep paying or debts owed family members. Intentionally leaving out a creditor is against the law. There are ways to keep debts after bankruptcy if you want to pay back and reaffirm the debt. My experience has been that most family members and friends you owe money to are very understanding about your financial difficulties. And, you are free to pay back any creditor you want to after your case is done. Do not pay family members or friends before you file, but paying them afterward is perfectly acceptable.
Myth 10:
I will have to go to court and be grilled by my creditors. NOT TRUE: Most people that file for bankruptcy in Oregon never go to court. They do have to appear at a "meeting of creditors" for a short hearing, however, in most cases no creditors show up. The main purpose of the meeting is to answer questions from the bankruptcy trustee about your property or any recent financial transactions you may have been involved in, like selling a home or car. He or she will also want to know if you have made any unusual payment to your creditors or if you have paid any friends or family members. This meeting usually lasts less than 5-10 minutes. I will make sure you are fully prepared for this meeting, as I know the types of questions the trustee is likely to ask you. Since the Covid-19 pandemic, these hearings are all conducted over the phone, which has made the process less stressful for many clients.
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