Common Misconceptions

COMMON MISCONCEPTIONS ABOUT BANKRUPTCY

Before you head over to the proper financial authorities to file your bankruptcy, it may be wise to read up on some of the common misconceptions about it. You may find out some false information about what you thought you knew about how filing for bankruptcy would affect your current situation.

MYTH: Under the new bankruptcy law, you will not qualify for bankruptcy relief.

FACT: The new law limits very few aspects of filing a bankruptcy. The majority of people who qualified to file bankruptcy before the change, still qualify. Many people may actually obtain better results now, than under the old law. With your free consultation, you can determine what kind of case best helps you to deal with your individual circumstances.

MYTH: You will lose everything you own.

FACT: In the majority of the cases we file, people don’t lose anything except property they decide they want to give up in order to improve their financial circumstances. Laws covering the exemption of real estate and personal property vary from state to state, but each state has laws to protect certain property. Tennessee exemption laws are even increasing effective July 1, 2010, which allows you to retain more personal property than ever before in Tennessee. Depending on your circumstances, Chapter 13 may be more beneficial than Chapter 7 if you have many assets, but we can help you analyze your situation to determine what type of bankruptcy best benefits you.

MYTH: It is very difficult to file for bankruptcy.

FACT: In the hands of an experienced bankruptcy attorney, it is surprisingly easy to get the help you need. You may struggle with deciding to file, but once the decision is made, we can make the process very straightforward and simple.

MYTH: If you file for bankruptcy, it will cause problems for you and your family, or even lead to divorce.

FACT: The opposite is often true. Financial stress often leads to a very strained relationship with your spouse and family. Bankruptcy laws exist to allow you to obtain relief from financial difficulties. Many people discover that eliminating the financial stress is the first step toward recovering your family relationships.

MYTH: You can only file for bankruptcy one time.

FACT: You may file and obtain a discharge under Chapter 7 once every eight years. There are many differing “waiting periods” for obtaining different discharges between filing Chapter 13 and Chapter 7; an experienced attorney in our office can help you determine whether you presently qualify for the discharge you desire, or if you presently do not qualify, you may do so sooner than you think. We can help you to find out what kind of relief you are entitled to obtain during your free initial consultation. We commonly have clients file Chapter 13 even though there is no Chapter 7 discharge available.

MYTH: You will never be able to own anything again.

FACT: Many people seem to believe this, but it is completely untrue. After you file your bankruptcy and obtain a discharge, you may buy, own, possess or control anything you can afford. If you can afford it, you may own houses, cars, boats – whatever you are financially able to purchase. You may borrow immediately upon filing Chapter 7, and with court approval, you may borrow for necessities during Chapter 13.

MYTH: You will never be able to get credit again.

FACT: You are probably more likely to qualify for credit after filing than before. Filing a bankruptcy enables you to get out of debt, improving your debt-to-income ratio, and thus making you a better credit risk. Think about it from a creditor’s perspective – after a bankruptcy, you have eliminated your debt, and at least for a period of time, creditors know you cannot bankrupt against them. You become a much more attractive prospect to a creditor. Many people quickly begin receiving pre-approved credit offers (although, of course, you want to be careful with that - you don’t want to be right back in the same place!) We in fact have banks and lenders who solicit our firm to send them our debtors to re-establish a banking relationship.

MYTH: Filing bankruptcy will destroy your credit for 10 years.

FACT: If you are contemplating filing for bankruptcy, chances are that your credit is already not in good shape. Your credit score may suffer initially when you file a bankruptcy, but it can be recovered while the bankruptcy still appears on your credit (and frequently filing the bankruptcy actually improves people’s scores). You can start rebuilding your credit even while the bankruptcy is reported. The bankruptcy is only one piece of your credit score, and the longer it has been since you filed, the less your score is affected by that one piece. If you now have a high credit score it may be that bankruptcy is a bad choice because you can obtain a low interest loan to consolidate your high interest, predatory loans. It may be that despite a presently high credit score, you know it is about to plunge because you no longer have the means to make timely payments.

MYTH: If you are married, your spouse must file with you if you file.

FACT: Many cases are filed by one spouse while the other doesn’t file. In some instances, we file Chapter 13 for one spouse and Chapter 7 for the other. You need an experienced attorney to help you strategize to determine what the best options for you are. Frequently it makes sense for both spouses to file, if there is joint debt or other circumstances, but it is not required under the law. When one spouse needs bankruptcy relief and the other does not, we will file for one spouse and leave the other spouse out of it.

MYTH: Even if you file for bankruptcy, creditors will still harass you and your family.

FACT: For most cases filed, the filing of a bankruptcy triggers by operation of law the “automatic stay” which prohibits creditors from taking any action outside your bankruptcy to collect their debt. This includes suing you, dunning you, attempting to repossess or foreclose, calling you or even sending you a billing statement. In fact, creditors must immediately stop any collection actions they have already started. If creditors continue to attempt to collect from you, you even have the right to bring an action against them for violating the stay. Furthermore, there is also a “co-debtor stay” that automatically protects your co-signer on consumer debts if you file Chapter 13. Your creditors know they must leave you alone as you reorganize under Chapter 13.

MYTH: You can’t get rid of back taxes through bankruptcy.

FACT: While it is true that some taxes are non-dischargeable in bankruptcy, many may be forgiven. The rules governing the discharge of tax liabilities are complicated, so you will want an experienced attorney helping you to determine which category of taxes you are dealing with. In addition, under Chapter 13 you may be able to stop penalties and interest from accruing, so that even taxes which are not dischargeable may be managed in such a way as to allow you to slow-pay the taxes over number of years and make other bill collectors wait in line until your priority taxes are paid. You have probably heard horror stories from people attempting to deal with tax debts on their own – sometimes it seems like you will NEVER be free from tax liability. With the right strategy, however, these can frequently be dealt with so that at the conclusion of your case or cases you may owe NOTHING to the IRS. Our experienced attorneys are on a first-name basis with IRS Special Procedures agents and the U.S. Attorneys, so we frequently resolve very complex tax issues that would not have been resolved otherwise.

MYTH: Filing bankruptcy means you are not a good person.

FACT: Filing bankruptcy means you are acting responsibly about your debt. You are utilizing a law that serves the purpose of allowing you to deal with your obligations legally. A basic principle of bankruptcy law is to protect the “honest but unfortunate” debtor. People who are dealing with uncontrollable circumstances need the opportunity to restructure or obtain a fresh start, and bankruptcy is the law that permits this. There is a reason that so many people file for bankruptcy relief, and it isn’t that they are bad people. Many, many decent, hard-working people have circumstances beyond their control – job loss, underemployment, medical problems, family emergencies, failed businesses, or just unfortunate decisions can result in people being unable to meet all of their obligations. Bankruptcy provides for these people to legally deal with their obligations in order to move forward with their lives.

For more information, call 892-HELP (892-4357) for a 24-hour information line that explains bankruptcy in greater detail. Or call the office directly for an appointment, at 423/624-4002.

Below are some articles that focus on common misconceptions with Bankruptcy.

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MSN Money – Why going broke is a fact of life in America

  

The New York Times – Personal Bankruptcies

  

The Washington Post – Beware Fast Credit Fixes

  

Collections & Credit Risk – Lawyer in Lona Modification Scheme Charged With Bank Fraud

  

MSN Money – Bounce back fast after bankruptcy

  

MSN Money – Beware cut-rate bankruptcy advice

  

Washington Post – Calling the debt collectors on abuse

  

Sunday Times – Soon there may be nobody left to lend to America

  

MSN Money – Lenders create a bankruptcy monster

  

Frontline – Secret History of the Credit Card

  

Newsweek – Credit-Card Company or Loan Shark

  

Collections & Credit Risk – Credit Repair Company Reaches Financial Settlement With FTC

  

Marketwatch – Beware of ‘Debt-Relief’ Offers

  

MSN Money – 13 ways to avoid a bad bankruptcy attorney