Truth About Chapter 7 Bankruptcy

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  • 1. It is very difficult to file for bankruptcy.
  • It is not difficult to file for bankruptcy, but it is recommended that you hire an experienced bankruptcy petition prepare to ensure that it is done properly.
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  • 2. Only “deadbeats” file for bankruptcy.
  • You can let go of this misconception immediately. Most people file for bankruptcy after a life-changing experience, such as a sudden job loss, a serious illness, or a divorce. Bankruptcy is a financial tool that, at times, could make sense for almost anyone, including people and companies known for their wealth or past business successes.
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  • 3. If I am married, my spouse and I both have to file for bankruptcy.
  • This is not true if one spouse has a significant amount of debt in his or her name only. However, if spouses have debts they want to discharge that they are both liable for, they should file for bankruptcy together. Otherwise, the creditor will simply demand payment for the entire amount from the spouse who did not file for bankruptcy.
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  • 4. Everyone will know I filed for bankruptcy.
  • Bankruptcy is public record, but unless you are a prominent public figure, people are not going to go looking. The only people who are going to know are those who you tell and those who have access to the bankruptcy court record system unless your local court places their role in the local newspaper.
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  • 5. I cannot get rid of back taxes through bankruptcy.
  • On rare occasions, you can get rid of back taxes. For the greatest chance of success, you have to file all your returns and the taxes owed need to be at least three years old.
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  • 6. I can only file for bankruptcy once.
  • You can file for chapter 7 bankruptcy once every six years.
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  • 7. I can max out all my credit cards, file for bankruptcy, and never pay for the things I bought.
  • Behavior such as this can lead to fraud charges. Bankruptcy trustees know how to spot fraud, and the trustee in your case will carefully review all the purchases leading up to your filing. Bankruptcy judges do not look kindly at fraud.
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  • 8. I should not include certain creditors in my bankruptcy filing because if I do, I will not be able to repay them if the debt is discharged (under chapter 7 liquidation).
  • Bankruptcy is an all-or-nothing deal, so you must include all of your creditors in the petition. Although you are no longer liable for debts that have been discharged, there is nothing in the Bankruptcy Code that prevents you from repaying them once you get back on your feet.
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  • 9. I will lose everything I own.
  • Bankruptcy actually makes it easier for you to keep your property. Once you have filed for bankruptcy, you and your property are protected from lawsuits, foreclosures, garnishments, and any other collection activity. Bankruptcy does not always wipe out liens, which means if you want to continue to keep the property, you will need to continue to pay the lien. Laws that allow you to keep property vary from state to state, and you should consult an attorney in your area.
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  • 10. I will never be able to own property again.
  • You will get credit card offers and be extended credit shortly after the discharge of your bankruptcy. There are also creditors that will lend to you while you are in bankruptcy. You will be able to purchase whatever you can afford.