I get questions all the time about bankruptcy that still surprise me. What I've learned is that there is a lot of misinformation out there.
Here are my top five bankruptcy myths (in descending order):
MYTH #5: YOU CAN'T FILE IF YOU HAVE A JOB
"Means testing" was added to the bankruptcy laws in 2005 to ensure that people who could afford to pay their bills paid something. The idea behind means testing made sense. But in reality, your income has to be very high before the Courts will reject a Chapter 7 filing. Even if your income is over the means test, there are many factors that play into deciding whether you pass or not, too many for this post (call me and I'll tell you more).
MYTH #4: YOU WILL LOSE MOST OF WHAT YOU OWN IF YOU FILE
The vast majority of bankruptcy filings are "no asset" cases. The fact is that most of your assets -- home, vehicles, retirement savings, modest bank savings, and all of the items folks typically own (clothing, furniture, electronic devices, etc.) -- are 100% protected. In Minnesota, if you own your home you can even have a significant amount of equity in your residence and protect all of it.
MYTH #3: YOU CANNOT ELIMINATE TAX DEBTS
There are strict rules about discharging income tax debts but the fact is that you can completely eliminate older tax obligations to the IRS and to the State by filing bankruptcy. The rules are a bit too lengthy to review here, but one rule is that the taxes have to have been first due at least three years ago. If need be, you can hire a bankruptcy lawyer to assist you while you organize your affairs and wait for the right time to file. And then say goodbye to the old tax debts.
MYTH #2: BANKRUPTCY DESTROYS YOUR CREDIT
For better or worse, we live in a society where credit is relatively cheap and easy to get, even after a bankruptcy filing. Chapter 7 filers frequently get credit card and car loan offers the month after they file. Chapter 13 filers can qualify for new loans during their case. Normally, credit scores can rebound significantly within 12 to 24 months after the filing date. I frequently hear back from clients who are buying homes or refinancing home loans three years after they hired me and they are getting competitive interest rate offers (not the absolute best rates but rates that are surprisingly good).
MYTH #1: BANKRUPTCY IS A PERSONAL FAILURE
Nearly all personal bankruptcy filings are caused by job loss, medical issues, divorce, or other factors that are largely things outside of our control. Bankruptcy is not welfare or a government handout. It is an economic safety valve to save people from being stuck with debts they can never repay.
If you are struggling with bills, talk with an experienced bankruptcy lawyer to learn more and to go over your options. When you call our office, there is no obligation and your first consultation is free.
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