Law Office of Phil Hineman

Common Bankruptcy Myths and Questions.

1. Everyone will know I’ve filed for bankruptcy.

Unless you’re a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors. While it’s true that bankruptcy is a public legal proceeding, the number of people filing is so massive that very few publications have the space, the manpower or the inclination to run all of them.

2. All debts are wiped out in Chapter 7 bankruptcy.

No.  There are a few exceptions to keep in mind.  Certain types of debts cannot be discharged and erased. They include child support, alimony, certain taxes, government-issued or government-guaranteed student loans, and debts incurred as the result of fraud.   In a Chapter 7, these debts will survive and need to be paid afterwards.  In a Chapter 13, most of these debts can be paid through the Plan (with the notable exception of student loans).  For a free detailed consultation to discuss your particular debts, please fill out the contact form.

3. I’ll lose everything I have.

This is the misconception that keeps people who really should file for bankruptcy from doing it.  People think the government will sell everything they have and they’ll have to start over in a cardboard box.  For most people though, they’ll go through the bankruptcy and keep everything they have.  You can keep your car and house, assuming you are current on payments.  The main asset people lose is a portion of their next tax refund.

4. I’ll never get credit again.

Quite the contrary. It won’t be long before you’re getting credit card offers again. They’ll just be from subprime lenders that will charge very high interest rates.  With credit markets tightening, chances are you’re not in a position to buy a house or car. But if you are, you might want to do that before you file. After bankruptcy, those loans will be tough to get and the higher interest rate on such a large purchase would have a significant effect on your payments. Also, if you have a credit card with a zero balance on the day you file for bankruptcy, you don’t have to list it as a creditor since you don’t owe money on it. That means you might be able to keep that card even after the bankruptcy.

5. If you’re married, both spouses have to file for bankruptcy.

Not necessarily.  However, as Arizona is a community property state, if any of the debts were incurred while you were married, both spouses can be liable.  Since it does not cost more for both spouses to file, we generally recommend a joint filing.  The major exception is if you were recently married, and one spouse has the majority of the debt.  This is an issue best discussed with the attorney during your free consultation.

6. It’s really hard to file for bankruptcy.

It’s really not. You don’t even technically need an attorney. However, it’s generally not recommended to go through the procedure without one, especially if you have tax issues, non-exempt assets, or other issues that could complicate your matter.

7. Only deadbeats file for bankruptcy.

Most people file for bankruptcy after a life-changing experience, such as a divorce, the loss of a job or a serious illness. They’ve struggled to pay their bills for months and just keep falling further behind.  Many people draw from their retirements or take out additional lines of credit on their homes in order to pay debts down.  However, a bankruptcy may allow you to protect more of your assets and still discharge your debts.

8. I don’t want to include certain creditors in my filing because it’s important to me to pay them back someday and if the debt is discharged, I can’t ever repay them.

This is a common thought.  You’re no longer obligated to repay them, but you always have that opportunity. If your conscience won’t let you sleep nights because you didn’t pay your debts, there’s nothing in the bankruptcy code that prevents you from doing that once you’re back on your feet. But bankruptcy is an all-or-nothing deal, so you have to include all your creditors in the petition.

9. Filing for bankruptcy will improve my credit rating because all those debts will be gone.

That sounds like an ad for a bankruptcy lawyer trolling for clients. Filing for bankruptcy is the worst “negative” you can have on your credit report. Unlike other negatives, which stay on your report for seven years, bankruptcy can be there for 10 years.

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

Generally speaking, this is true. However, if your taxes were filed timely, and the debt is more than three years old, you may be able to discharge the debt.  Tax issues are generally more complicated, so be sure to bring along as much information to your free consultation so your attorney can properly advise you.

11. You can file for bankruptcy only once.

You can file for bankruptcy more than once, but the bankruptcy law that went into effect in October 2005 lengthened the required wait between filings. You can file for Chapter 7 bankruptcy only once very eight years. You have to wait two years to repeat a Chapter 13 filing and four years between a Chapter 7 and a Chapter 13 case.

12. I can max out all my credit cards, file for bankruptcy and never pay for the things I bought.

That’s called fraud and bankruptcy judges can get really cranky about it. The trustee in your case will review all your purchases right before your filing. The trustee knows what to look for.  We generally advise that once you see a Kingman bankruptcy attorney, you should stop using all of your credit cards.