Unquestionably, consumer bankruptcy — Chapter 7 and Chapter 13 — is one area of law that has a huge number of myths and misinformation perpetuated around it. Most of what you "hear" about consumer bankruptcy consists of misinformation and scare tactics, if not outright lies. These "myths" are put forth by the banking, consumer finance and credit card industries. These "money-changers" do not want you to take advantage of the powerful federal laws that benefit individuals and families at their expense. They spend millions to make people think that they "will lose everything" or "never be able to buy anything on credit again." In this section we want to dispel some of the "myths" about bankruptcy, while providing you with the truth about bankruptcy, i.e., how it really works in practice and how it will work in your particular case. What's particularly troubling about the bankruptcy myths is that you are never told the truth — that the benefits of bankruptcy cannot be denied. It is a federally guaranteed measure to discharge debt and get a new lease on financial life.
Unfortunately, many of these myths stop people from getting the financial relief that they need. Many of these myths originate with creditors, whose business is actually adversely affected by bankruptcy. Some of the most prevalent myths include ideas that:
My credit score will be permanently ruined because I filed bankruptcy. This common myth is particularly damaging because, quite often, bankruptcy has the opposite effect. Yes, bankruptcy will appear on your credit record. However, your credit score can go UP almost immediately after bankruptcy. When you file bankruptcy you get rid of debt. Your debt-to-income ratio, which is a significant part of your overall credit score, improves overnight. That said, bankruptcy may help your debt-to-credit ratio improve immediately, and you may get credit offers soon after filing. If you make good credit choices in the future, you can quickly rebuild any damaged credit and further your standing. Additionally, most people who are considering bankruptcy do not have good credit to begin with. The damage has already been done. In those cases, filing bankruptcy almost always IMPROVES your credit score!
I will "lose everything" if I file bankruptcy. This, again, is simply not true. When you file bankruptcy, you may claim certain property as "exempt." Property that may be claimed as exempt includes the equity in your home and automobiles. Exempt property also includes your furniture, clothing and other household goods. Qualified retirement funds may be claimed as exempt. While the myth is that you "will lose everything," almost every one of our clients over the past 20 years that have filed bankruptcy "KEPT EVERYTHING." Just about the only things that are NOT exempt are "luxury" items or "toys," such as ski boats or vacation homes. Most folks who file bankruptcy do not even own any nonexempt property. For those who do, most do not mind giving up the 4-wheeler in order to get rid of overwhelming debt. For those who insist on retaining the bass boat and the lake cabin, that can be accomplished as well with a specific Chapter 13 plan.
People can no longer file bankruptcy because of the "new" bankruptcy laws. Presumably, this myth originated in 2005 when laws were passed that changed the bankruptcy process. That said, bankruptcy filing is still a completely viable method for reaching financial stability.
Everyone will know I filed bankruptcy. While filings are a matter of public record, the likelihood of someone looking this up is remote. And, unlike foreclosures and other legal proceedings, bankruptcy filings ARE NOT published in the newspaper. To the contrary, if you are deeply in debt and cannot pay, it is much more likely that your name will appear in the local newspaper if you DON'T file bankruptcy in the foreclosure or legal notices section. Furthermore, filing bankruptcy does not have nearly the stigma that many people think. A quick Google search shows the prevalence of bankruptcy filing and many famous people who have filed. Approximately 1.5 million consumer bankruptcy cases are filed each year.
Regardless of your circumstances, if you are working through unmanageable debt, we recommend you get in touch with us so you can make a well-informed decision about how to resolve your debt problems. Don't fail to exercise your legal rights based on lies, misinformation and "myths." Your first appointment with an attorney is free and you will learn the truth about bankruptcy and how it works in your particular financial situation. To schedule a free initial consultation to discuss bankruptcy myths call 601-948-4878 or email the firm.
The Jackson-based Pond Law Firm is a federally designated debt relief agency. Our lawyers help people file for bankruptcy relief under the Bankruptcy Code.