Myth #1: I will lose everything I own.
FALSE. When you file for relief under the bankruptcy code, you are given exemptions to protect a certain number of assets and leave them unreachable to the bankruptcy trustee and creditors. Depending on which state you live in, these exemptions can either be very minimal or extremely friendly. Fortunately for California residents, the California exemption scheme is extremely friendly. In fact, California residents are actually given 2 different exemption schemes to choose from depending on the assets they want to protect.
Most debtors that file for bankruptcy in California are able to protect all of their assets and thus do not “lose” anything. To understand more about how the exemptions work and how we can help you protect your assets, please read our “Bankruptcy Exemptions” page.
Myth #2: I will never get credit again.
FALSE. The main thing about getting credit is keeping up with your credit score. Once you file for bankruptcy relief and receive your discharge, you can immediately start rebuilding your credit. Even though the bankruptcy remains on your credit for upwards of 10 years, as long as you rebuild your credit, you will have no problem getting credit much quicker than that. You will be able to apply for credit cards almost immediately after receiving your discharge, apply for auto loans immediately after receiving your discharge, and only have to wait 2 years to apply for a home loan.
To learn more about how you can improve your credit score, read our recently posted blog titled “The Infamous Credit Score”.
Myth #3: I have to file bankruptcy with my spouse.
FALSE. Your spouse is not required to file bankruptcy with you if he/she chooses not to. This is completely up to you and your spouse whether you file by yourself or whether you file as a couple. If you end up filing on your own, the bankruptcy court will still need to take into consideration your spouse’s income and community property assets though. Also, you will likely need to have the non-filing spouse sign a waiver.
Myth #4: Bankruptcy will not help me with my taxes.
FALSE. As it is true that there is a good chance that you will not be able to discharge your tax obligations in a bankruptcy, that is not always the case. Under certain circumstances, you can discharge your tax obligations by receiving your bankruptcy discharge. In addition, a Chapter 13 bankruptcy could be a very beneficial tool for someone who has a high tax obligation because it provides a protected environment to repay the taxes in a 5-year period.
Myth #5: I am going to file bankruptcy but keep certain creditors out of it.
FALSE. You are required to list everyone that you owe money to, whether you intend to pay them back or not, when you file for relief under the bankruptcy code. That doesn’t mean that you couldn’t voluntarily pay someone back after your bankruptcy is complete though, even though you are under no legal obligation to do so. This is intended to benefit the debtor because if they were able to pick and choose who to list, they would be putting themselves at risk of defaulting on the loans they left out of the bankruptcy and being put in the same position they were prior to the bankruptcy being filed.
Myth #6: I am going to file bankruptcy so I should run up my credit cards before I file.
FALSE. If you intentionally run up your credit cards prior to filing for bankruptcy relief, you are committing fraud and this could put your discharge at risk.
Myth #7: Filing for bankruptcy is too expensive.
FALSE. When looking at the entire scheme of things, it is much less expensive to file for bankruptcy than it is to not file. If you don’t file, you face the risk of being sued and having to defend your case in a civil court, your wages being garnished at up to 25%, your bank accounts levied, and liens placed on your assets. Also, you will at some point have to “face the music” and deal with the debt that you have accrued and that has been increasing each month with late fees and interest payments. By spending a small amount of money today, you can avoid all of that and any cost that is associated with it.
Our office offers payment plans to make it even easier for clients who are in an extremely dire situation.
Myth #8: There is a minimum amount of debt needed to file bankruptcy.
FALSE. There is not a “minimum” amount of debt that is needed to file for bankruptcy relief. Each case is different and speaking with a professional could prove to be very beneficial to you. For example, one person might need to file for bankruptcy relief because he/she has $10,000.00 of unsecured debt while another person might not need to. Don’t compare your situation to others.
Myth #9: It’s okay for me to repay my relatives prior to filing for bankruptcy relief.
FALSE. By doing this, the Trustee has the ability to recover that money from your family member and distribute it to the other creditors in your case. This rule was implemented to prohibit debtors from treating one creditor better than the next. In the Court’s eyes, if you didn’t pay Visa the $10,000.00 you owe them, you shouldn’t be paying your cousin the $5,000.00 you owe him/her.
Myth 10: You can only file bankruptcy one time.
FALSE. As it is true that a Judge could bar someone from filing for bankruptcy relief under certain circumstances, the general rule does not go that far. You are allowed to file for bankruptcy relief after a certain amount of time has passed since your prior case was filed. The amount of time depends on which chapter you previously filed and what chapter you are looking to file now.
Please find below a summary of the general restrictions on how long one must wait to file another bankruptcy after receiving a discharge in a previous bankruptcy case.
|
Chapter Previously Filed |
Chapter Looking To File Now |
Length Of Time Required Between Filing Dates |
|
7 |
7 |
8 years |
|
7 |
13 |
4 years |
|
13 |
7 |
6 years |
|
13 |
13 |
2 years |
Myth #11: Everyone will find out that I filed for bankruptcy.
FALSE. It is true that bankruptcy cases are a matter of public record and if anybody wanted to do a search, they could discover that you filed for bankruptcy. However, as a practical matter, the only people that get notice of your filing are the creditors that you owe money to.
Myth #12: I don’t want to lose my car so I will transfer it to my brother before I file for bankruptcy.
FALSE. This would be considered a fraudulent transfer and the Trustee will have the ability to avoid it. Moreover, the majority of times when someone is thinking of doing this, they are doing so because of some advice they received from a friend or a bad attorney. Doing this will make your bankruptcy case much more difficult than had you spoken with a knowledgeable bankruptcy attorney prior to doing anything.
Myth #13: I will never be able to buy a house if I file bankruptcy.
FALSE: This is actually quite the opposite.
Imagine a Debtor that has $50,000.00 of credit card and earns $62,000.00 of annual income. This person continues to attempt to pay his credit card debt off. His minimum payments on that credit card debt are likely at least $1,000.00 - $1,500.00 per month. Doing those minimum payments is paying a lot of interest, and thus the principal balances aren’t moving down much. Fast forward 2 years and imagine where that person is. Sure, he/she doesn’t have a bankruptcy on his/her record, however, still likely has over $40,000.00 of credit card debt, nothing in a savings account, and essentially living paycheck to paycheck. This person’s likeliness of qualifying for a home purchase is slim to none.
Now imagine the same debtor as above---$50,000.00 of credit card debt and earns $62,000.00 of annual income. In this scenario, the person files for Chapter 7 Bankruptcy and discharges the above credit card in approximately 3 months. At this point, this person opens a secured credit card with a $1,000.00 deposit, charges approximately $300.00 per month on this card, and then pays the bill in full at the end of each month. Since he/she isn’t paying the large minimum payments on the credit card debt no longer, he is saving that money. Fast forward 1 year and 9 months (3 months in the bankruptcy + 1 year 9 months = 2 years). This person now has possibly in excess of $25,00.00 saved up since he/she wasn’t wasting it on large minimum payments. His credit score has been drastically increasing post-bankruptcy---get’s the benefit of 0 debt, gets the benefit of no more maxed out credit cards, gets the benefit of making timely payments on the secured credit card, among other things. The general principal in the mortgage industry is that you need a 2-year waiting period post-bankruptcy to qualify for a mortgage. It is highly likely this person will now be able to get qualified for a home mortgage at the 2-year marker.
Myth #14: I have a job so the Court won’t let me file bankruptcy.
FALSE: There is no requirement in the Federal Bankruptcy Code or the Local Rules of the Bankruptcy Court that disallow a person from filing for Bankruptcy relief if they are employed. Income does play a huge rule in what options you ultimately have; however, the mere fact of being employed does not prohibit you from filing for bankruptcy relief.
The more important question to look at is how much income a person earns. People filing for Bankruptcy are required to complete the Means Test. This test requires an examination of 6 months of income and certain deductions. The results from this test will help in determining whether you qualify for filing for Bankruptcy relief.
Myth #15: I want to file bankruptcy but keep my business out of it.
FALSE: While a person can file for Bankruptcy relief and continue to operate their business, they are still required to disclose certain information to the Bankruptcy Court. There are two main components when a person files a Bankruptcy case, assets and income.
As far as income goes, income earned from this business must be disclosed and will go into the examination of whether a person actually qualifies for a Bankruptcy. Moreover, all of the person’s assets must be disclosed to the Court. A person’s ownership of a business is part of these assets. Therefore, you would need to determine the assets of the business and ultimately the value of this business to a third party. This valuation will then be disclosed to the Court and depending on how much it’s worth, the Court will determine whether they will liquidate that business or whether they will allow the Debtor to keep and continue operating the business.
Myth #16: I’m worried that all of my creditors will show up at the 341 Meeting of Creditors and harass me.
FALSE: Our experienced Bankruptcy attorney has been practicing Bankruptcy Law since 2009. During that time, it is quite evident that creditors actually rarely appear at these hearings. Yes, they have the option/ability to and yes, the hearing is called “Meeting of Creditors”, but it is extremely rare that they do. In general, the only parties that actually participate in that hearing is the Debtor (i.e., person who has filed for Bankruptcy), the Trustee (i.e., Court appointed person to administer the case), and the Debtor’s Attorney.
Myth #17: I have equity in my house so I can’t file bankruptcy because the Court will take my house.
FALSE: While it is a possibility that the Bankruptcy Court and the Court Appointed Trustee do liquidate your home, it is rare this actually happens. When a person files for Bankruptcy, they are also allowed to Exempt (i.e., protect) certain assets up to certain amounts. As long you have enough Exemptions (i.e., protection) to cover the equity in your home, the Court and Trustee are disallowed form taking and selling your home. Here in California, you can Exempt (i.e., protect) up to $600,000.00 of equity in your home and once you’ve done that, the house is safe.
Myth #18: Since I’m filing Bankruptcy, I won’t have to pay on my car again.
FALSE: While this is technically true, it really depends on what you want to do with that car. If you no longer wish to keep the car for whatever the reason is (can’t afford it, don’t like it, etc.), then you can surrender the vehicle to the lender and you’ll never be obligated to pay on it again---as long as you file for Bankruptcy and receive a discharge of course. However, if you are wanting to keep the car, you will need to continue paying on it. You do technically discharge your personal obligation on the debt but the lender keeps their lien. The lender will generally allow you to keep the car as long as you voluntarily continue making the monthly payments on it.
Myth #19: Hiring a Bankruptcy Attorney is a waste of money; I can do it myself!
FALSE: Good luck! If you make a mistake or don’t understand certain rules, you are putting your assets and income, among other things, at risk. Our office even accepts payment plans for people who can’t pay the fees up front.
Myth #20: I only have one car so the Bankruptcy Court can’t take my only car!
FALSE: It does not matter whether you have one car or twenty cars. The true analysis focuses on how much equity is your car(s) and how much of that equity you can Exempt (i.e., protect). Person A can own 1 car that is completely paid off and is worth $20,000.00 and the Court could potentially liquidate that one car. On the other hand, Person B could have ten cars with a total of $5,000.00 of equity and he/she could potentially Exempt (i.e., protect) each of those ten cars. Exemptions are a crucial part of understanding Bankruptcy Law.
MORAL OF THE STORY?
Don’t believe everything you hear or read!
Contact Sacramento Bankruptcy Lawyer today by calling 916-800-7690 or by clicking HERE and set up your FREE no-hassle consultation with a top bankruptcy attorney who is ready to review and discuss your particular case.
We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.
