Top Bankruptcy Myths, Debunked

Myth #1: Bankruptcy Will Cause You to Lose All Your Property.

Bankruptcy is meant to help individuals and businesses in financial distress, so taking away all their assets would do more harm than good. Most people who file for bankruptcy lose their debt, not their property.

There are many exemptions in the bankruptcy code that will protect people’s assets during a Chapter 7 bankruptcy.  These include social security, unemployment, and – depending on how much equity they have – other possessions like their home and car.  And in New York, people going through a bankruptcy can now decide between both federal and state exemption options. This means that they have more options when it comes to establishing their exempt assets for the court.

Myth #2: Everyone Will Know You Filed for Bankruptcy.

While major corporations’ bankruptcies may make the front page, the chances that an individual’s bankruptcy will be picked up by news sources is very rare. Is your bankruptcy a matter of public record? Yes. But millions of people have filed for bankruptcy over the last few years alone, so unless someone is specifically looking for your financial information, there is little chance your bankruptcy will be known unless you share that information with others. Bankruptcy filings are also not indexed by Google and other Internet search engines. In most cases, the only people who will know are you, your attorney, and your creditors.

Myth #3: Both You and Your Spouse Have to File for Bankruptcy.

In some cases it makes sense for both spouses to file jointly for bankruptcy – they may have a lot of joint or individual debt. But this is not required by law. Every bankruptcy is unique, and in some cases it does not make sense to file jointly.

Sometimes one spouse will file for bankruptcy, and if the couple has problems making payments during a Chapter 13 restructuring plan, the other spouse will then file. Or, if the majority of debt is under one spouse’s name, that person may file for bankruptcy in order to protect the good credit of the other spouse. If you don’t have joint debt, your spouse’s credit will not be negatively affected. And if you do, creditors cannot contact you or your spouse once you file for thanks to the “automatic stay” imposed during bankruptcy.

Myth #4: You Cannot Discharge Back Taxes in Bankruptcy.

It is possible to get rid of both federal and state back taxes during a bankruptcy. However, there are specific rules that define when this is possible. For example, there are certain kinds of taxes that are not dischargeable, like “trust fund” taxes. Other kinds of taxes, like certain federal taxes or property taxes, can be mitigated. And there are deadlines that determine when back taxes can be dischargeable. So while it is certainly possible to get rid of back taxes, it is best to work closely with a bankruptcy attorney and the information provided to you by the IRS to make sure that you can get the most help out of your bankruptcy filing.

Myth #5: You Can Only File for Bankruptcy Once.

Bankruptcy is not a one-time financial “reset” button. While it is meant to get people back on their feet, they may fall back into debt due to unforeseen circumstances. The reality is that you can  file for Chapter 7 bankruptcy once every eight years. You can refile Chapter 13 one year after your last filing. You can also file for Chapter 7 after filing for Chapter 13, and vice versa.

I hope that dispelling these common bankruptcy myths makes it clear that bankruptcy is not shameful or impossible. It should also show that bankruptcy is a multi-step, individualized process. It’s best to work with an experienced bankruptcy attorney throughout this process to ensure that every step is covered. If you have questions about bankruptcy and how it can work for you, call the Law Offices of Bruce Feinstein, Esq. today for a Free Consultation.

(718) 514-9770

[Source: bankruptcylawnetork.com]

Stay Connected: