What are the biggest myths about filing bankruptcy?
Myths and misinformation about filing bankruptcy persist despite facts
Traditionally, resorting to bankruptcy was seen as a stigma of financial ruin and disgrace. But as more people began to avail themselves of what the U.S. Bankruptcy Court calls "a fresh start," many debtors have taken advantage of this legal remedy as a way to get back on their feet.
One of the lingering fears is that people may feel embarrassed that their bankruptcy is a "personal failing," states Jackson & Oglesby Law in Indianapolis. However, while it is a detailed and sometimes complex process, their cases are handled by court professionals who don't judge debtors on the circumstances that led to their bankruptcy.
Other concerns range from misinformation to myths that people have long believed about bankruptcy. For instance, many think they will lose their jobs or their citizenship once their petition is filed. Not only is being terminated for filing bankruptcy prohibited by law, but the court will not notify an employer when the case is active. It is a matter of public record, but will not become widely known to those not directly involved. Similarly, bankruptcy has no bearing on citizenship.
Myths about losses
Many people shy away from filing because they believe they'll lose everything in the process, according to the KM Law Group in California. The truth is that the state and federal exemptions provided in the bankruptcy code generally cover major assets such as a house, car and personal belongings. The vast number of cases are personal bankruptcies under Chapter 7, which usually involves debtors who have few or no non-exempt assets that a trustee can sell to pay their bills.
Since income determines which chapter applies, Chapter 13 - called the "wage earner's" bankruptcy - debunks the myth that debtors must be "flat broke" for a filing to take place.
In addition, intangible assets such as pension plans and IRAs are largely exempt as are government benefits such as social security. However, debtors are prohibited from drawing out large amounts or making significant payments into their plans just prior to filing bankruptcy.
There is also no minimum amount of debt that must be incurred before a court action is possible. The determining factor is whether people have enough income to pay their debts.
Finally, the belief that married debtors must involve their spouses in the court action isn't true. They are able to file alone or jointly as a couple, although filing alone may allow lenders to hold the marriage partner responsible for certain debts.