Common Myths About Filing Bankruptcy
- Everyone will know I’ve filed for bankruptcy. Most bankruptcies are not reported in the newspaper. In Tulsa, only business bankruptcies are reported in the newspaper, consumer bankruptcies are not. Of course, all bankruptcies are public record (with a password that costs money), but someone must be looking for you in order to find your bankruptcy.
- All debts are wiped out in Chapter bankruptcy. No. Some debts cannot be discharged in bankruptcy, like child support and support alimony, student loans, recent taxes, restitution for a criminal act and debts incurred as the result of fraud.
- I’ll lose everything I have. No. Oklahoma has exemptions which are very debtor friendly and most people keep everything they have. In Oklahoma, you’ll be able to keep your home, a car (worth up to $7500 in equity), household goods and furnishings, your retirement plan, and many other type of property.
- I’ll never get credit again. Quite the contrary. You’ll be surprised as the credit card companies that will solicit your business immediately after bankruptcy (stay away!). You’ll start receiving advertisements for car loans even while you are in bankruptcy (a chapter 7 lasts 3 months).
- If you’re married, both spouses have to file for bankruptcy. Not true. Many people have debts that arose prior to marriage, or incurred debt only in one spouse’s name during the marriage. One spouse can file bankruptcy while the other does not.
- I get to keep my car after bankruptcy without having to pay for it. Surprisingly, people believe this. If you have a car worth $7500 or less, and it’s paid for, you’ll keep your car. If you have a car that you owe money on, you’ll have to keep making the payments to keep the car.
- Only deadbeats file for bankruptcy. Don’t be embarrassed to consider filing for bankruptcy. Most people file for bankruptcy as a result of a life-changing experience, like divorce, loss of a job, or a serious illness. They’ve been struggling to pay their bills and just can’t keep up anymore. Sometimes, we just need to start over.
- I don’t want to include certain creditors in my filing. Sometimes, you want to be able to pay a certain creditor back after your bankruptcy filing, even though the debt is legally discharged. And that is okay. There is nothing in the bankruptcy code which prohibits you from paying back any of your creditors, on your terms. Just remember, you must list everyone on your schedules, though, even if you intend to pay them back later.
- Filing for bankruptcy will destroy my credit rating. Not necessarily. There are situations where a person’s credit score will improve because he/she filed bankruptcy. Wiping out all of that debt means your income to debt ratio improves, and so does your credit score. A rule of thumb is that if your score in now in the 500s, a chapter 7 bankruptcy will help your credit score; low 600s will stay approximately the same and 650 and higher will mean a temporary reduction to your credit score.
- You can’t get rid of back taxes through bankruptcy. Generally speaking, this is true. However, personal taxes can be discharged if you filed over 3 years ago and they are still owed, subject to certain rules.
- You can only file for bankruptcy once. Technically, you can file anytime you want, but it doesn’t make any sense. You can’t receive a chapter 7 bankruptcy discharge if you filed bankruptcy within the previous 8 years. You can’t receive a Chapter 13 bankruptcy discharge if you filed bankruptcy in the last 4 years.
- I can max out all my credit cards, file for bankruptcy and never pay for the things I bought. No, that would be fraud. Don’t do it.
Most of the myth headings are borrowed from a November 17, 2011 article found on MSN, by Bankrate, Inc. “<a href=”//www.casb.uscourts.gov/html/care/Articles/12_bk_myths.pdf” target=”_blank”>12 myths about bankruptcy</a>” The explanations are mine.
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