Many people have misconceptions about bankruptcy that prevent them from considering bankruptcy as an option for dealing with their financial struggles. In fact, filing a bankruptcy is often the most feasible and beneficial way to deal with a person’s debt.
Misconceptions are commonly a result of a lack of information, which is why it is important to discuss your financial issues with a bankruptcy attorney before making any decisions about the best way to deal with your financial issues. Below are some commonly held misconceptions about bankruptcy.
Truth: As long as you continue to make your monthly mortgage payments, you will be able to remain in your home. Both under state law and federal bankruptcy law, you are allowed a homestead exemption that (in most cases) will protect your home. The bankruptcy itself does not result in you losing your home. If a home is lost in connection with a bankruptcy filing, it is usually because you are behind on the payments and are unable to continue making them. When that happens, the lender forecloses.
Truth: In today’s world it is very rare that a publication prints the name of each bankruptcy filer in your community. Typically, if you are not a business (or someone famous or notorious), the only people who will know that you filed are your attorney, your creditors, and those you choose to tell.
Truth: Most people do not lose any of their belongings when they file for bankruptcy. Both state law and federal bankruptcy law allow you to protect most property including vehicles, household goods and furnishings, clothing, and jewelry. It is true that debtors in a small percentage of cases lose some assets, but you definitely will not lose everything that you own.
Truth: Almost everyone who qualified for a Chapter 7 prior to 2005 would still qualify today. In addition, if your income prevents you from filing a Chapter 7 bankruptcy, only very limited circumstances would prevent you from filing a Chapter 13 bankruptcy.
Truth: Certain taxes can be discharged in a bankruptcy. In general, personal income taxes that are 3 years old or older, filed at least two years prior to the bankruptcy, and have not been assessed in the 240 days prior to the bankruptcy filing may be dischargeable.
Truth: Some of your debts may remain. Tax debt for recently filed returns and child support arrears are two types of debt that cannot be discharged. Restitution payments, criminal penalties, and other certain debts owing to a governmental unit, are also cannot be discharged. Student loans also cannot be discharged, except in extremely limited cases.