Myth #1: I will lose my house and car if I file bankruptcy.
Most people keep their house and cars when they file bankruptcy. In Colorado, you can have up to $60,000 of equity in your home ($90,000 if you are over 60 years old or disabled). A single person can have up to $5,000 of equity in vehicles and it doubles if you are married, over 60 years old, or disabled. When Burt Reynolds filed bankruptcy he kept a $2.5 million mansion while writing off $8 million in debt.
Myth #2: When I file bankruptcy, someone from the court will come to my house and go through my possessions.
You can keep household items that do not exceed $3,000 in total value ($6,000 if you are married). Keep in mind that your items are valued at garage sale, pawnshop prices. Generally, no one will come to your home unless you are being dishonest about your assets. You simply list your possessions on your bankruptcy schedules and tell the truth.
Myth #3: If I file bankruptcy, I will never be able to finance a car again.
Many clients actually find it easier to finance a car after they file bankruptcy. This is because their debt to income ratio has improved and the car lender knows that the individual cannot file bankruptcy again for at least four (4) years. Clients can buy a car the after they file bankruptcy, but remember, interest rates will be higher than buyers with good credit.
Myth #4: If I file bankruptcy, I will never get another credit card.
Unfortunately, clients receive many offers from credit card companies after a bankruptcy discharge. It is important to have some credit, but one should limit their credit card use. Remember, never charge more than 30% of the card's limit, and pay it off every month.
Myth #5: Filing a bankruptcy is easy; all I need to do is file a couple of papers with the court.
Bankruptcy is a legal process that has complex rules, laws, procedures, and regulations. The creditors have aggressive legal counsel to fight you and the bankruptcy trustee can take certain items if you make a mistake. If you want to be successful in this process, then you need the best legal counsel to guide you through the process.
Myth #6: When I file bankruptcy all my debts get erased.
Not necessarily will all of your debts disappear after filing bankruptcy. Most debts go away after you file bankruptcy such as credit cards, medical bills, lines of credit, etc. However, child support, alimony, and student loans never go away. Some taxes go away depending on the tax year and when you filed the tax return. Secured debts, such as mortgages and car loans, are discharged as well, but you can keep those items so long as you continue to make your monthly payments after filing bankruptcy. Unfortunately, your discharge order will not explain which debts you no longer have to pay so having an attorney is important so you know what debts are legitimate after you file bankruptcy.
Myth #7: To file bankruptcy, I must be delinquent on all my debts.
No, I often have clients that file bankruptcy who are current on all their debts with credit scores above 700. However, they recognize the warning sign and know they need to file sooner rather than later. These clients are only "current" because they often times transfer balances from one credit card to another or pay the minimum monthly payments only to use the credit cards again since they have no money left to buy groceries. In fact, clients who file bankruptcy with higher credit scores will recover faster when it comes to rebuilding their credit. Thus, it does not matter if you are current or delinquent on your bills because if you have too much debt, you need to file bankruptcy.
Myth #8: If I file bankruptcy, I will have to go to court where my creditors and a judge will grill me over the coals.
Although you need to attend a "341 Meeting of Creditors," creditors rarely attend the meeting. Credit card companies, mortgage and car lenders know that some of their customers will file bankruptcy and it is a cost of doing business. In addition, there is no judge at the meeting. Instead, you meet a court-appointed trustee who is often times another bankruptcy attorney in the community. At our firm, an attorney will attend the meeting with you and the bankruptcy trustee will ask you simple, straightforward questions. While clients are often nervous about this meeting, it is typically the easiest part of the process because we will prepare you for the meeting.
Myth #9: I will lose my job if I file bankruptcy.
This simply is not true. Yes, some employers may do a credit check and ask if you have ever filed bankruptcy. Typically, this is to determine whether you are an honest person. Keep in mind that many business people understand that bankruptcy may be a wise and necessary option in order to recover from a financial crisis. Most importantly though, it is illegal to terminate any employee on the sole grounds that he or she filed for bankruptcy.
Myth #10: If I file bankruptcy, I have given up on my dreams and my chances of becoming a success.
What do the following people have in common: U.S. Presidents Ulysses S. Grant and Abraham Lincoln, Burt Reynolds, P.T. Barnum, H.J. Heinz, Charles Goodyear, Henry Ford, Sam Walton, Milton Hershey, Walt Disney, Larry King, Kim Basinger, Cindy Lauper, Dorothy Hamill, and Donald Trump?
You guessed it - they all filed bankruptcy. There is no shame in coming to realize that you have too much debt and there is certainly nothing wrong with doing something about it. Remember, bankruptcy is a federal law that entitles you to relief if you have too much debt. It is not a crime to file bankruptcy. Most of the time, it is your best your choice.
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