"Only deadbeats file bankruptcy."
Nothing could be further from the truth. While there are some filers who
blatantly try to defraud their creditors by abusing the bankruptcy system,
they comprise a very small minority. The majority of people file for bankruptcy
after a life-altering event, such as divorce, illness, death of spouse,
or loss of a job. And even after suffering such an event, most people
endure years of financial hardship, negative credit, emotional distress,
and embarrassment before finally deciding to pursue bankruptcy. While
the detractors of bankruptcy continue to look down on the so-called "deadbeats"
for filing bankruptcy, most people in this country, including the detractors,
are a disaster away from filing bankruptcy themselves.
"You don't have to list all of your creditors in the bankruptcy."
Bankruptcy is an all-or-nothing deal. The code requires that you list
all of the creditors to whom you owe money. Even if you choose not to
list a certain creditor in your bankruptcy, many creditors will find out
through routine checks and will close all related accounts. The unlisted
debts will likewise be bound by the bankruptcy discharge. For those wishing
to repay their debts in the future, nothing in the code prevents debtors
from repaying creditors post-bankruptcy.
"Since I'm going to file, I should max out my credit cards."
Some people think that if you are going to file bankruptcy, you might
as well max out your credit cards and reap as much financial benefit as
you can. This is fraud, and there are harsh penalties for those who commit
it. The U.S. trustee, bankruptcy judges, and other federal officials will
levy penalties that include denying discharge, fines, and, in extremely
egregious cases, imprisonment.
"You can't file bankruptcy more than once."
In fact, you can file a Chapter 7 "liquidation" bankruptcy once
every eight years. For Chapter 13 "reorganization", there is
no specified limit. Nonetheless, for repeat filers, the court has the
power to evaluate whether a filer is substantially abusing the bankruptcy
system. If so, the court may enjoin a particular debtor from filing another
bankruptcy.
"If I wait long enough, I won't have to repay my debts and the
negative remarks will disappear from my credit report."
I can't tell you how many times clients have told me this. Many people
actually take this "head in the sand" approach and wait years
for their creditors to go away, only to find out later that the debts
have been assigned to collection agencies and/or resulted in civil judgments.
Worse yet, the balances have sometimes doubled or even tripled due to
interest and penalties. Rest assured, if you owe creditor money today,
you will owe them tomorrow, next year, and 10 years from now. Even though
there are some statutory limitations that hinder creditors from filing
a lawsuit, it does little to stop the aggressive ones from collecting
their money. You are much better off in nipping your financial problems
at the bud by filing a bankruptcy or settling your debts before they grows
out of proportion.
"I won't be able to get credit again for 7 to 10 years after bankruptcy."
If one is already behind on credit card payments, facing imminent judgments,
foreclosures, garnishments, etc., he or she is not going to qualify for
credit unless these debts are resolved. If he gets any credit at all,
it would be at an exorbitant interest rate slapped with other costly loan
conditions. Contrary to popular belief, when a debtor emerges from bankruptcy
with a discharge, more often than not, he or she is more creditworthy
than a person laden with unresolved delinquent loans and judgments. Why?
Although both persons would suffer from negative credit, the newly bankruptcy-discharged
person has NO debt. No obligations to repay. No pending garnishments,
levies, etc.