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14 Lies About Bankruptcy

Search the words “bankruptcy”, or “filing for bankruptcy”, or even “Rhode Island bankruptcy lawyer” on the internet and you will discover a subject surrounded by a confusion and misinformation.

However, if you are drowning in debt, it becomes crucial to separate fiction from fact. Is bankruptcy as bad as your creditors would have you believe? Let’s analyze a few of the charges leveled at bankruptcy to find the truth.

Myth 1:  Under The NEW Bankruptcy Law….There’s No More Help (or It’s Too Late To File)

Nothing could be further from the truth. Despite what you may have heard from the press, this claim is completely unsupported. In reality, you can do almost as much (and in some cases, more) under the new law as you could under the old law. Many clients are actually making out better under the new law than they did under the old.

Myth 2:  Everyone Will Know You Have Filed For Bankruptcy

This is another falsehood. The average person can obtain a financial fresh start without the world ever finding out: chances are the only people who will know about your RI Chapter 7 filing are the people you decide to tell. Although it is true that your bankruptcy is a matter of public record, the number of bankruptcies filed yearly is so massive that the possibility of anyone knowing you filed is extremely remote.

It is crucial to note the importance of not telling others of your bankruptcy filing. Like divorces and cancer, financial problems makes good gossip, and if you tell one person, you tell the world. Unless you actually want your friends and family to know you filed for bankruptcy, keep it under your hat.

Myth 3:  You Will Lose Everything You Have

Most of my clients don’t lose anything. Every state, including Rhode Island and Massachusetts, has its own set of exemptions that protect various kinds of property under bankruptcy. For example, Rhode Isand’s exemption laws protect a person’s house, car, truck, household goods, furnishings, retirement plans, IRAs, wages, personal injury claims, and cash value in life insurance. In most cases, creditors will not require the signing of a reaffirmation agreement to keep secured property.  Even if you have more property than can be covered by available exemptions, filing for the slightly-more-expensive Chapter 13 bankruptcy allows you to keep your property.

Myth 4:  You Will Never Be Able To Own Anything Again

No matter how many people believe this myth, it too is untrue. If anything, bankruptcy actually helps you get back on your own feet financially. In the future you will be able to buy, own, control and possess whatever you can afford, and if you are able to come up with the money for it, there is no law preventing you from buying homes, cars, trucks, equipment, household goods, et cetera.

Myth 5:  You Will Never Get Credit Again

The opposite is true: filing for bankruptcy leaves you in a better position to get credit than not filing. This is because filing for bankruptcy eliminates debt. Once your debt is behind you, you look more attractive to banks and credit card companies. In fact, it probably won’t be long before you start getting credit card offers-which is a mixed blessing because you don’t want to get right back into debt all over again.

Banks, credit card companies and other lenders might charge you higher interest rates at first, and will demand more money in down payments, but if you are financially responsible and keep your job, the quality of your credit will only improve as time goes by. In most cases, if a client has not re-established good credit after 3 years, it is not because he filed bankruptcy; something else must have happened to disrupt his credit.

Myth 6:  Filing Bankruptcy Means You’re a Bad Person

On the contrary, filing bankruptcy is a sign of financial responsibility.

Filing RI bankruptcy helps remove certain debts so you can take better care of your family, freeing your loved ones from the constant threat of unpaid bills and harrassing bill collectors.

Over 750,000 families file for bankruptcy relief every year. The majority of these are industrious, honest, law-abiding people who have simply fallen on hard times-whether it be job loss, family emergencies, medical difficulties, failed businesses, or otherwise. Bankruptcy laws were created with such unforeseen circumstances in mind, in order to allow families trapped under crushing mountains of debt to make a fresh start for themselves.

Myth 7:  Filing Bankruptcy Will Hurt Your Credit For 10 Years

To believe this myth is to confuse two entirely different concepts. The fact that a bankruptcy filing is reported on your credit report for up to 10 years does not mean that you will have no credit, or bad credit, for 10 years. In reality, filing for federal debt relief might not actually have a negative effect on your credit score at all.

Generally speaking your credit is already a mess-or maxed out-by the time you make an appointment to see a bankruptcy attorney. More than likely you have very little or no credit for bankruptcy to hurt.

Myth 8:  If You’re Married…Both You and Your Spouse Have To File For Bankruptcy

Thousands of cases exist in which husbands or wives filed for bankruptcy separately from each other. While it is sensible for a husband and wife who both have a lot of debt to file for bankruptcy together, doing so is never a legal requirement.  If there is not enough debt in both spouse’s names, I will only file for the spouse who actually needs help.

Myth 9:  It’s Really Hard To File For Bankruptcy

With an experienced bankruptcy attorney, filing for bankruptcy is far from difficult. In all honesty, the most difficult part of filing for bankruptcy is making the decision to do so. After that decision is made, filing bankruptcy in Rhode Island should be a straightforward process.

Myth 10:  Only Deadbeats File For Bankruptcy

Most who file consumer bankruptcy do so in order to protect their family from financial ruin. The majority of people who file for debt-relief are hardworking individuals who resort to filing as a last-ditch attempt to deal with large bills. Life-changing experiences like divorce, job-loss, failed businesses, illness, and unforeseen emergencies can happen unexpectedly.  As a step to free your family from crushing debt created by these events, bankruptcy is a noble act.

Compare this to the real definition of a deadbeat: someone who lets himself get deeper and deeper into debt each year, allows creditors to abuse him, and pays his hard-earned money to those creditors while his family suffers.  His house falls apart, his car falls apart, his life falls apart, his family falls apart.

He doesn’t seek to fix his situation because he doesn’t care. “Deadbeats” don’t file for bankruptcy: financially responsible people who care about their families do.

Myth 11:  Even If You File For Bankruptcy, Creditors Will Still Harass You and Your Family

The moment you file bankruptcy, an order called the “automatic stay” is issued by the Rhode Island Bankruptcy Court. This order is a grave warning that tells your creditors to leave you alone. The automatic stay prohibits you from all collection actions and even prevents your creditors from being allowed to talk to you. Creditors must cease all new collection attempts and halt all collection attempts they have already started. Their failure to do so gives you the right to take your creditor to court. Bankruptcy Court Judges are not friendly to violators of the “automatic stay.” In essence, creditors can either leave you alone or suffer the consequences: many Bankruptcy Court Judges have been known to issue severe punishment on offending creditors.

Think about the peace of mind you will have once you file for bankruptcy protection. No more collection letters, phone calls, repossessions, lawsuits, or threats of foreclosure from hungry creditors. You are protected by the “automatic stay”and have the full force of the bankruptcy court system backing you.

Myth 12:  If You File For Bankruptcy, It May Cause More Family Troubles and May Even Lead To Divorce

Filing for bankruptcy does not cause family troubles-not being able to provide for your family does. Stress and anxiety in the family are the products of the symptoms, not the cure. When unpaid bills loom, creditors can knock at the door, and nothing can be done about it.  In this environment, families will experience tremendous levels of pressure. If this pressure is allowed to continue for long, it can lead to family rifts and even divorce.

Bankruptcy, by its very nature, is designed to remove this pressure by destroying debt. Once the burden of debt is removed, stress lowers and your family can breathe easy again. Filing for bankruptcy can be an important first step in re-building relationships strained by financial hardship.

Myth 13:  You Can Only File Once For Bankruptcy Protection

Under Chapter 7 bankruptcy law, you can get a “discharge” once every eight years, allowing you to file for debt relief again if necessary. The wait is even shorter under Chapter 13, where it is only six years.

Myth 14:  You Can Pick and Choose Which Debts and Property To List In Your Bankruptcy

Unfortunately, this is not only impossible, but illegal. You must list all of your property and all of your debts when filing for bankruptcy. One of the prime reasons people want to leave out a debt is because they want to continue paying it off. However, the same result can be achieved under bankruptcy. Bankruptcy does not prohibit you from paying back whoever you like. In fact, in some cases you need to continue paying certain debts under bankruptcy-if you want to keep cars, trucks, or houses you owe money on, for example, you must continue paying off your debt.  You are protected under law and are able to keep the property for as long as you stay current on these loans.

Bottom line:  Knowledge is power. And in these days of financial instability, economic turmoil, and rampant debt, knowledge about your financial options is crucial to keeping your family and possessions secure.  Wouldn’t you prefer to know the truth about bankruptcy than remain in the dark about your options?  Before you come to your own personal verdict, make sure you know enough information to make a responsible decision.

The sad truth is that myths and ignorance are a creditor’s best friends.

About Mark Buckley

Consumer Bankruptcy, Estate Planning, and debt-settlement attorney licensed in RI & MA. I am the only bankruptcy lawyer who is a certified financial planner professional. 

To plan your estate, or resolve debt concerns, call me at (401) 467-6800.