Dischargeable Debts and Other Bankruptcy Myths
Unfortunately, there are many myths surrounding bankruptcy. Some myths may have been born out of truth but have been twisted to the point where they are intended to frighten debtors away from filing rather than provide valid, truthful information about bankruptcy. Some myths cause more harm than others do; however, the one thing they all have in common – – they are not true. Below are some of the most common bankruptcy myths and some truthful information to set the record straight.
If I file bankruptcy, I will lose my home, my car and all of my property. – FALSE
The truth behind this myth is that most individuals who file bankruptcy do not lose any of their property unless they choose to surrender items. In a Chapter 7 bankruptcy, you can choose to retain secured property (i.e. home, car, etc.) and continue to make the monthly payments. However, you also have the option of surrendering the property to the lien holder and discharging the debt completely. In the majority of Chapter 7 cases, the trustee declares the case to be a no asset case meaning the debtor does not lose any property. For individuals who own substantial property with equity above the exemption levels, they may be eligible to file a Chapter 13 case to discharge debts while retaining their property.
If I file bankruptcy, my spouse must file too. – FALSE
Spouses may file jointly; however, a spouse may also file individually if the other spouse does not want to file for bankruptcy relief. This myth was born because spouses fear that their credit will be ruined if one spouse files and the other does not. The fact is that if you do not have any joint debt with your spouse, his filing will not affect your credit at all. However, if you do have joint debt with your spouse and he files bankruptcy, his legal responsibility to repay the debt will be discharged. To keep your good credit standing, you would need to continue paying the joint debt until it is paid in full.
Tax Debts are non-dischargeable. – FALSE
While most tax debts are non-dischargeable, there are exceptions to this rule. There are cases in which taxes owed to the Internal Revenue Service and the Michigan Department of Treasury can be discharged. In order to know if your tax debts can be discharged, you need to seek the advice of an experienced Michigan bankruptcy attorney like Gene F. Turnwald. Even if your tax debts are not eligible for discharge, you can file a Chapter 13 to spread out the payments over a five year plan at 0% interest.
If I file bankruptcy, I will never get credit again. – FALSE
This bankruptcy myth is simply not true. While it is true that debtors had to wait longer to get credit than they do today, debtors are able to obtain credit, and repair their credit rating, within a relatively short period of time after filing bankruptcy. Some debtors receive credit card applications within months after they receive their discharge; however, caution should be used when applying for new credit as the limits will be low and the interest rates will be very high. However, as more time goes by, you continue to make secured payments on time and you use credit wisely, your credit score will increase allowing you to obtain credit at a reasonable interest rate.
I can choose the debts that I want to file bankruptcy on and leave the rest out. – FALSE
Under the Bankruptcy Code, debtors are required to list all debts as of the date of the bankruptcy filing. This includes mortgages, vehicle loans, personal loans to friends or relatives, medical bill and credit cards. In other words, every debt that you owe other than current utilities must be listed in your bankruptcy case. However, some debts will be treated differently than other debts. For example, if you want to keep your home and car, you would simply continue to pay those payments according to the terms of your contract. Even though your bankruptcy will discharge the debt you owe to your family doctor, if you want to continue seeing your family doctor, you may choose to voluntarily pay that debt (some doctors may not require this to continue seeing a patient). One important fact that you want to keep in mind when contemplating bankruptcy, if you try to pay family, friends or any other creditor money within a specific period of time prior to filing bankruptcy in order to keep that debt out of the bankruptcy, the trustee may be able to recover those funds. You should consult with a bankruptcy attorney to avoid problems.
If I transfer property out of my name before I file bankruptcy, the trustee and my creditors will not be able to take it. – ABSOLUTELY FALSE
Under the Bankruptcy Code, certain transfers of property or assets prior to bankruptcy may be considered fraudulent conveyances. Depending on the circumstances, they could be anything transferred up to six years prior to filing. Consequences of a fraudulent transfer could include the trustee voiding the transfer and obtaining the property as well as your discharge being denied. No property is worth that type of risk. Always consult an experienced Michigan bankruptcy attorney prior to transferring any property if you are contemplating bankruptcy.
If I file bankruptcy, I will not be able to get another job. – FALSE
It is illegal for employers to discriminate based on a previous bankruptcy. It is also illegal for an employer to fire you for filing bankruptcy. There are certain jobs that require a credit report, especially if you are working with money such as a bank or credit union, so it may be difficult to prove discrimination if you agreed for the company to access your credit report. One key thing to remember is that millions of people have filed for bankruptcy relief and they get new jobs each day. Most employers never run a credit check and, therefore, never discover your bankruptcy filing. The other key thing to remember is that when you need relief from overwhelming debt, the slim possibility that you may not be able to get one job (knowing that there are many more you can get) should not keep you from seeking the help that you need through the bankruptcy court.
Everyone will know that I filed bankruptcy. – FALSE
Even though bankruptcy filings are public record, the person searching for your bankruptcy would know where to look and how to search for your filing. The Federal Court System’s PACER network requires a login and password in order to access their database. There is also a charge for this service; therefore, most people would never sign up for an account even if they did stumble upon it. Bankruptcies are not published in newspapers or local periodicals (with extremely rare occasions); therefore, your co-workers, employer, friends and relatives will not know you filed bankruptcy unless you tell them. The only practical way someone would know about your bankruptcy is if you apply for credit or a job where you consent to your credit report being accessed as part of the process.
I need an attorney to file a bankruptcy. – FALSE BUT NOT ADVISABLE
According to the law, you can file your own bankruptcy case pro se meaning you are representing yourself. However, because even the simplest bankruptcy can become complex very quickly, it is advisable to have a qualified Michigan bankruptcy attorney like Gene F. Turnwald represent you in your bankruptcy case. One mistake, such as failing to claim the proper exemption, could result in your losing your home or other assets. If you miss a deadline or fail to meet all requirements, you discharge could be denied and you will still owe all of the debt you owed prior to the bankruptcy case. With so much at stake, it is a wise investment to hire a bankruptcy attorney to protect your interests and your assets in a bankruptcy filing.
The Law Office of Gene F. Turnwald files successful bankruptcy cases for clients every day. We take the time to answer all of your bankruptcy questions so that there are no bankruptcy myths left to confuse you about the process of filing bankruptcy. Contact our office today to schedule your free bankruptcy consultation.