Creditors want to confuse or frighten you. Friends may have had bad information or correctly recall bankruptcy information that’s now outdated. Here are 10 myths about filing bankruptcy. Each and every one of them is wrong.
Bankruptcy Myth: Bankruptcy relief is no longer available. Almost all of the relief available through bankruptcy before the changes to the law in 2005 survives in today’s bankruptcy code. It is a little more involved and somewhat more expensive, but it still works.
Bankruptcy 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 Bankruptcy. You do need to have a source of income in order to file a Chapter 13.
Bankruptcy Myth: Medical bills can’t be discharged. A variation on this myth is that “you can’t discharge credit card debt in bankruptcy.” This sounds like the law as described by bill collectors! Almost all unsecured contract debt, like credit cards, personal loans, and medical bills remain dischargeable in bankruptcy.
Bankruptcy Myth: Chapter 13 plans require repayment in full. 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 pay in a 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.
Bankruptcy Myth: Bankruptcy keeps you from credit for 10 years. Nonsense! People in Chapter 13 can borrow money during their case; people who have filed Chapter 7 get credit card offers soon after they get their discharge. This is not credit at the best rates, but credit is available. This myth got its start in the fact that the Fair Credit Reporting Act allows, but does not require the reporting of a bankruptcy filing for 10 years.
Bankruptcy Myth: You lose everything you own in bankruptcy. Nearly all bankruptcy cases filed by individuals are “no asset” cases in which the debtor keeps everything they own. This is because exemptions shelter assets that the debtor can keep. Some assets, like pensions, are simply beyond the reach of bankruptcy trustees and creditors.
Bankruptcy Myth:Bankruptcy represents personal failure. More than 90% of bankruptcy filings are traceable to job loss; illness; or divorce, factors largely out of anyone’s control.
Bankruptcy 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. The pricing of credit takes into account that not everyone will be able to repay. In fact, scholars believe that bankruptcy is essential in the global economy.
Bankruptcy Myth: There is a minimum amount of debt required to file for 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.
Bankruptcy Myth: Married couples must file bankruptcy together. Spouses may file a joint case; they do not have to file together. If only one spouse files for bankruptcy, careful attention is required to understand what property will be treated as property of the bankruptcy estate.