Myth 1: The new bankruptcy laws have made it too difficult to eliminate your debt.
False. The new bankruptcy laws only changed the method by which consumers qualify for the different types of bankruptcy. They don’t prevent people from filing under either Chapter 7 or Chapter 13 and in most cases people are still able to get the same relief now as before the law changed.
Myth 2: Only irresponsible people file for bankruptcy.
Bankruptcy laws in this country have their roots in the Old Testament bible. "At the end of every seven years you shall grant a release of debts And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD’s release." Deuteronomy 15:1-2.
Additionally, the United States Constitution allows it . Bankruptcy is a way to allow Americans to start over after a life-changing experience, such as a divorce, loss of a job or a serious illness. In these tough economic times it is not uncommon for good people to struggle to pay their bills month after month only to keep falling further behind due to high interest rates, late fees and unfair penalties. Filing for bankruptcy protection has provided millions of hard-working people the fresh start they deserve.
Myth 3: Everyone will find out I filed for bankruptcy.
Unless you’re a famous politician, movie star, professional athlete or the star of your own reality television show, the chances are very good that the only people who will know you filed for bankruptcy are your creditors. While it’s true that bankruptcy is a public legal proceeding, the numbers of people filing are so massive, very few newspapers have the space, the manpower or the inclination to run all of them. In fact, with millions of people filing every year, it’s likely that someone you know recently filed for bankruptcy without you ever finding out about it.
Myth 6: Bankruptcy will not get rid of your back taxes.
Sometimes it does, sometimes it doesn’t. If you always filed your taxes on time, any taxes you have owed for more than 3 years could be wiped out in bankruptcy. Other taxes can be paid off through a Chapter 13. There are several qualifications that have to be met in order for the taxes to be wiped out.
Myth 9: If you are married, both you and your spouse have to file bankruptcy at the same time.
This is not the case. It is up to you whether to file together or separately or not at all. In many cases it makes sense for husband and wife to file together, but in some instances the spouse might not want to file. This is absolutely fine and definitely allowed by the court. However, both spouses who continue to reside together must fully disclose their income for determination of eligibility for bankruptcy and means test calculations.
Myth 4: Bankruptcy will ruin my credit for at least 10 years.
Not true. The confusion arises because most people mistake their credit report (a summary of your payment and credit history) with their actual credit (your ability to borrow money). While it is true that a bankruptcy will stay on your credit report for 7-10 years, it is also true that you can start to rebuild your actual credit as soon as your case is discharged. Bankruptcy will erase most of your debts and greatly improve your debt-to-credit ratio, making you more attractive to lenders who see that you are now able to afford the payments on new debt and know that you are not eligible to file bankruptcy again for 8 years.
Myth 7: Once you have decided to file for bankruptcy you can max out all of your credit cards and the debts will just be erased.
Wrong. Running up your credit cards in anticipation of erasing all your debts by filing for bankruptcy is considered fraud. If either the trustee or judge assigned to your case thinks you have engaged in this sort of behavior, they can not only deny your bankruptcy petition, they can also refer you to the United States Attorney’s office for possible criminal prosecution. Understand that the trustee assigned to your case will review all the purchases you made right before filing and she knows what to look for.
Myth 10: You can pick and choose which debts to include in your bankruptcy.
False. You have to list all of your debts, the creditors who hold that debt and the property that you own. You cannot discriminate between creditors, even if you want to keep paying them. If you feel like paying a specific debt after the bankruptcy that is your right, but you will not be obligated to do so once the debt is discharged.
Myth 5: I’ll lose everything I have.
Not true. In fact, most people who file bankruptcy do not lose anything they want to keep.This is because Oklahoma has strong exemption laws that protect certain property like your house, your car, household goods, IRAs, retirement plans and a major portion of you personal injury claims from being seized by your creditors. In the rare event you have property that cannot be protected with an exemption you can file a Chapter 13 bankruptcy that allows you to catch up on late payments, puts a hold on spiraling interest rates and enables you to keep your house, car or truck as long as you continue to make the current payments.
Myth 8: After I file someone will come to my house to look for assets they can liquidate.
It is extremely rare that someone comes to your house to inspect your property and assets. All that is required is that you list all your possessions on your bankruptcy schedules, which are completed under oath.
Myth 11: There is no reason to file bankruptcy if you are unemployed and don’t own any valuable property.
For some people this statement is true. If you have no assets and no income it may be impossible for creditors to collect on any judgments against you. However, you may want to file bankruptcy anyway to improve your credit. And while you may be unemployed now, when you go back to work your creditors could garnish your wages. You should still seek an attorney’s advice concerning if – and when – you should file bankruptcy.
Terry D. Bigby, Attorney at Law, 429 S. Muskogee, Tahlequah, OK 74464
918-456-1782 or 800-699-5893
Practices as an Oklahoma Bankruptcy Attorney
Licensed in Tulsa Bankruptcy Court and other Oklahoma Bankruptcy and State Courts