subject: Bankruptcy Facts And Common Misunderstanding Of Filing Bankruptcy [print this page] Bankruptcy Facts And Common Misunderstanding Of Filing Bankruptcy
Bankruptcy not only carries a stigma, but is also clouded in misconception. These two things go together. The stigma attached to bankruptcy grows mostly from the history we attach to it, and the assumptions we make about the process, how it affects our financial standing, and how other people will view us if we file for bankruptcy. As we can see from a close look at bankruptcy in our modern society, many of the things we believe about bankruptcy are simply not true.
Misconception 1. All my friends and neighbors will know I've filed bankruptcy - not true.
It is true that the record of your bankruptcy is not hidden from the public. Anyone who wants to go to the trouble to find out who is currently filing or who has filed for bankruptcy in the past can probably find that information fairly easily. But the simple fact is that unless you are someone the media has a reason to feature or highlight, it is extremely unlikely very many people will ever find out about your bankruptcy.
There is simply no single place where you can find an up-to-date list of people who have recently filed for bankruptcy. The numbers are so high, and the list changes so often that unless a publication or directory has a significant staff to watch these figures they are simply not going to do it.
Misconception 2 - I will lose everything I own.
This is probably one of the biggest concerns that most people have about bankruptcy and the thing that frightens them from filing. They have vague visions of debtors prison in their heads and assume they will have to start over completely from scratch - no house, no car, no furniture, no computer, ipod, camera, or even tools required to make a living.
If this was really the case you can imagine that almost no one would file for bankruptcy. Actual bankruptcy laws vary from state to state, but every state has exemptions that protect certain kinds of assets from being seized by your creditors or even the courts. These include your house, your car (up to a certain value), household goods and clothing and money in qualified retirement plans.
It may surprise you, but in many cases you can pass right through bankruptcy and essentially keep everything you have. That includes your mortgage and car loans as long as you keep on making the regular payments. The reason you are filing for bankruptcy is that you don't have a significant amount of equity to spread around. In most case it would not serve any useful purpose to sell your house from under you and give the little bit of equity in it to your creditors at the cost of putting you out on the street.
Misconception 3 - Filing a Chapter 7 bankruptcy wipes out your debts completely.
Unfortunately for the person filing for bankruptcy this is not true. Certain debts such as child support, alimony, government-issued or government-guaranteed student loans, and debts incurred as the result of fraud will not be forgiven in a Chapter 7. Also when property loans or car loans are secured by assets such as your house or car, those loans will normally remain in place.
Essentially what happens in a Chapter 7 bankruptcy is that the bankruptcy trustee gathers and sells the debtor's assets - other than those which are exempt or are pledged to specific creditors (e.g., a mortgage or car loan) and uses the proceeds of those non-exempt assets to pay legitimate creditors. The net result is that the debts to those creditors are fully discharged.
Not everyone is eligible to go through this process. For example if a person's monthly income is over a certain threshold the court will probably deem it necessary to file for Chapter 13 bankruptcy instead. A Chapter 13 proceeding involves filing a plan of repayment because it is assumed the debtor has sufficient income to pay back at least some of the money owed.
These are just three of the most widely held myths about bankruptcy. There are many others. If you are considering filing for bankruptcy you would do well to seek the advice of an attorney who specializes in bankruptcy cases. That may be the only way you will get an adequate explanation of the laws in your state, and good, solid information about which course of action is best for you.
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