You may have heard quite a bit about bankruptcy, either from your friends or on the news, but there are a lot of myths floating around about bankruptcy, particularly since the recent law change. Here are some of the most pernicious myths:
10. Since the law changed, bankruptcy is no longer an option for many people
Bankruptcy is still available for the overwhelming majority of people who need it. The law was changed in 2005 after a marathon lobbying blitz by the financial services industry. It is slightly more difficult to file bankruptcy. However, for people who are below median income, the only differences are increased costs and more documents necessary for the debtor to collect and send to the trustee and two classes to take.
9. All of my friends will know
Bankruptcy is a public record, so anyone who wishes to access bankruptcy records can do so. Do you have friends who go to Superior Court to read the dicey issues in neighbor’s divorce file? If so, they will probably look at your bankruptcy file. If not, the most likely way your friends will find out about your bankruptcy is when you tell them. Obviously, it is your decision with whom to share this information. (A substantial percentage of my clients are referred by friends or family who appreciate the way I handled their bankruptcies)
8. I will never get credit again
Credit exists after bankruptcy. It is more expensive and reestablishing credit takes time. While I certainly do not recommend bankruptcy as a credit improvement technique, if you could pay your bills now, your credit would improve. If, however, in two years you are still struggling and paying debts late, your credit would be worse than if you had filed bankruptcy today.
7. The trustee will come to my house and go through my stuff
In more than 25 years as an attorney and more than 20 years as a Chapter 7 trustee, I cannot think of a case where a trustee went to someone’s house except for when they didn’t have a telephone and knocking on the door was the only way to communicate with a client. Learn more about dealing with the trustee at a 341 meeting here.
6. The trustee will sell my possessions
In the vast majority of cases the trustee does not sell anything, meaning the debtor keeps all of their possessions. Learn more about what the trustee will do here.
5. I cannot file bankruptcy without passing a test.
Bankruptcy that the debtor participates in is called “debtor education”. If you have ever been to traffic school, you have a good idea of what debtor education is all about. Basically, it takes about two hours to do an interactive program to qualify for the debtor education before bankruptcy, and then another two hours after filing prior to the entry of a discharge.I have had more than 500 clients get through debtor education. Debtor education can be done in person in Bakersfield or online.
4. I can’t discharge ___________ in bankruptcy
Credit cards bills? Dischargeable!
Medical bills? Dischargeable!
3. It is ok to run up debts right before bankruptcy
Sorry, but no. Creditors can successfully object to your wiping out (discharging) their debts, or perhaps even to the entire bankruptcy. If you incur debts with the intent of not paying them, it is fraud. One of the concepts underlying bankruptcy is balancing the rights of creditors and debtors. If you are considering bankruptcy, please talk to me before making any big purchases, so that I can advise you on the best way to proceed.
2. If I am married, I cannot file without my spouse
Not true. Either spouse can file without the other. However, filing for one spouse without the other can cause problems. If this is something you are considering, please talk to me first and I can advise you on the best way to proceed.
1. I don’t owe enough money to file bankruptcy
Obviously, discharging only a little more than the cost of bankruptcy makes no sense. The issue is how far the water is over your head. In some cases, for a given amount of debt I would not recommend a bankruptcy. However, if the same person had a wage attachment that would cause them to fall behind on their house payments and get foreclosed, that would warrant bankruptcy. I’d be happy to help you figure out your options.