Bankruptcy Myths

Each and every one of these statements is false

Myth: Bankruptcy relief is no longer available

Almost all of the relief formerly available through bankruptcy survives in today’s bankruptcy code. It is a little more involved and somewhat more expensive, but it still works.

Myth: You can’t file bankruptcy if you have a job

The new “means test” is supposed to divert some filers who make more than the median income for households of their size in their state of residence to Chapter 13. The only way to fund a Chapter 13 plan is to HAVE a job. So, this is utterly untrue.

Myth: Medical bills can’t be discharged in bankruptcy

A variation on this myth is that “you can’t discharge credit card debt in bankruptcy.” This has the sound of the law-as-described-by-bill-collectors. Almost all unsecured contract debt, like credit cards, personal loans, and medical bills, remain dis-chargeable in bankruptcy.

Myth: Chapter 13 plans require repayment in full of debt

Chapter 13 plans range from plans that pay general unsecured creditors nothing to plans that pay 100%, with every variation calculable in between. How much you must pay in 13 is driven by the interplay between your disposable income, the value of your non exempt assets, and the total of priority debts you have.

Myth: People who file bankruptcy can’t get credit for 10 years

Nonsense. People in Chapter 13 can borrow money during the case; people who’ve filed Chapter 7 get inundated with credit card offers after they get their discharge. This is not credit at the best rates, but credit is available. The myth probably got its start in the fact that the Fair Credit Reporting Act allows

the reporting of a bankruptcy filing for 10 years.

Myth: You lose everything you oven in bankruptcy

Well over 95% of bankruptcy cases filed by individuals are “no asset” cases in which the debtor keeps everything he owns. That’s because exemptions provide for assets that the debtor can keep and some assets, like pensions, are beyond the reach of bankruptcy trustees and creditors.

Myth : Bankruptcy represents personal or moral failure

More than 90% of bankruptcy filings are traceable to job loss; illness; or divorce, factors largely out of anyone’s control. Bankruptcy is a safety value to prevent individuals from being buried by debts they can never repay.

Myth: Bankruptcy costs our society too much

Credit card issuers are wildly profitable despite the small percentage of loans discharged in bankruptcy. Our economy has benefited by the purchasing power facilitated by credit and the pricing of credit takes into account that not everyone will be able to repay. The “$400 per family bankruptcy tax” bruited about in Congress was a
number picked out of the air by a bank lobbyist who made an arithmetic error in the process.

Myth: There is a minimum amount of debt required to file bankruptcy

Bankruptcy law does not set any minimum amount of debt necessary to file. If the debt appears to be beyond your ability to pay, you can elect to file bankruptcy if it represents a smart choice in your personal and financial situation.

Myth: Married couples must file together

Spouses may file a joint case; they do not have to file together. If only one spouse files, careful attention is
required to understand what property will be treated as property of estate.

A bankruptcy lawyer can evaluate your financial situation and talk about your options, in and out of bankruptcy.

As consumers, we have been trained by the credit industry to equate the contents of our credit report with our credit worthiness. The two are not the same.
A credit report may show that you have faithfully made every payment on time for your entire life and still you are not worthy of more credit because you can’t ever pay off the credit you have.

What is credit report

A credit report is a history. Under federal law, you are entitled to an accurate history, but not to a re writing of truthful history. That history can properly include delinquencies or bankruptcy.

A bankruptcy discharge will not erase discharged creditors or your pre bankruptcy payment history. After a bankruptcy discharge, the amount outstanding for each discharged account should be shown as zero.

Your credit report is not a reliable guide to everyone you may owe money to. Not all creditors report to credit reporting agencies; your credit report lists only those that do report and the contents of the public record.

The notation that a debt is charged off does not necessarily mean it is not legally enforceable. “Charge off” is essentially an accounting term that

indicates that the creditor doesn’t expect to collect the debt; a charge off alters the creditor’s income for tax purposes. It does not relieve the debtor of legal liability for its payment.

Credit reports after bankruptcy

Your bankruptcy can be reported on your credit report for 10 years from the filing of the case. If you file a bankruptcy and voluntarily dismiss it before the discharge, the credit reporting agency must report the dismissal as well as the bankruptcy filing.

Assuming you have income, you should be more credit worthy after a bankruptcy than you were before, since your old debts no longer have a claim on your future income.

Fixing your credit report

You don’t need to hire anyone to see that errors in your credit report are corrected or positive information is reported. In fact, many credit repair offers are scams that, at best, waste your money and, at worst, involve you in a crime.

Under the Fair Credit Reporting Act, you can challenge information that you believe is

inaccurate. If the reporting agency can’t verify the accuracy of the information, they must remove it.
If you have received a discharge in bankruptcy, it is in your interest to have the discharge noted on your report, since it is proof that the old debt is no longer legally enforceable.

Consumers are entitled to a free credit report annually from each of the major reporting agencies.