Common Myths About Bankruptcy

Myth #1: People who file bankruptcy are dishonest.

Most people who turn to Maxwell Attorneys LLC for help honestly want to pay their bills. Most of the time the people who seek our help have lost a job, been out of work or had a serious illness with little or no health insurance coverage. Sometimes things happen that make it impossible to catch up on your bills. Bankruptcy is a legal right that is provided for in the United States Constitution. Bankruptcy is a right that protects honest people who are unable to pay their bills from harassment, lawsuits, wage garnishment and other creditor actions. Bankruptcy allows you a fresh start.

Bankruptcy laws have their roots in the Bible which says:

“At the end of every seven years thou shalt make a release. And this is the manner of the release: every creditor shall release that which he has lent unto his neighbor and his brother; because the Lord’s release hath been proclaimed.” (Deuteronomy 15:1-2)

Bankruptcy has been used many of our nation’s largest companies like Texaco, America West Airlines, Macy’s, TWA, and recently Lehman Brothers. Famous people have also turned to bankruptcy for a fresh start. People like P.T. Barnum, Jerry Lewis, Mickey Rooney, Tammy Wynette and former Atlanta Falcons Quarterback Michael Vick.

The same laws that are routinely used by corporations in America, and the rich and famous, can protect individuals and families.

Myth #2: You will lose all your property in a bankruptcy case.

Bankruptcy is designed to allow a fresh start, but that fresh start can’t happen if you have to give up everything that you own. Most of our clients don’t lose anything in their bankruptcy. The bankruptcy code allows state governments to decide what property is protected for bankruptcy cases filed in its state. In Wisconsin, you are allowed to keep most personal and household property, up to $40,000 of equity in your home, a modest amount of equity in a car, most retirement plans, and many tools of the trade.

Myth #3: You won’t be able to own anything after bankruptcy.

We hear from new clients all the time who are concerned that after filing bankruptcy they will not be able to own anything again. You can keep the property that is protected in the bankruptcy, and generally anything you acquire after the bankruptcy. The day you file bankruptcy starts the new financial chapter in your life. In most cases, anything you earn after the filing date is yours. Anything that you own or have owed to you before the case is filed is subject to the bankruptcy code, but most everyday belongings will be protected. If you have any concerns about your property, please contact our attorneys for a free consultation.

Myth #4: You will never be able to establish credit after a bankruptcy.

Simply not true. It will be harder after bankruptcy to immediately acquire credit. Many people who are contemplating bankruptcy already have serious credit problems and their credit score will likely be on a downward slide. Bankruptcy can help stop the fall of your credit score. After the bankruptcy you are likely to be in a better position to pay current bills and that should improve your chances of getting new credit Many stores and banks actively market to people who have filed bankruptcy. Most mortgage companies can assist applicants with a bankruptcy in as little as twelve to eighteen months after filing.

Myth #5: Bankruptcy wipes out all of your debts.

Bankruptcy can wipe out nearly all your debts, but some debts will survive. Certain debts can not be eliminated in bankruptcy. The debts that can not be discharged include child support, alimony, fines, restitution, some taxes, loans obtained by fraud, student loans, debts due to a DWI, and debts resulting from “willful and malicious” harm. In some cases, these debts can be handled effectively in a Chapter 13 bankruptcy.

Myth #6: If you give your property away or hide it before filing, you will get to keep it after filing bankruptcy.

ABSOLUTELY NOT. It is a federal crime to hide property and not disclose it in your bankruptcy. It is also a crime to give property away without disclosing the transfer in your bankruptcy papers. The bankruptcy trustee will seek to recover any property wrongfully transferred prior to a bankruptcy filing. You could end up in jail by attempting to illegally hide or transfer property.

Myth #7: You will lose your job if you file bankruptcy.

The bankruptcy code prohibits an employer from discriminating based on filing bankruptcy.

Myth #8: You can not file for bankruptcy because you filed for bankruptcy before.

There is a limitation on whether you can get another discharge of your debts if you have previously filed bankruptcy. The law prohibits someone from filing a new Chapter 7 bankruptcy within less than 8 years of a previous filing. This does not prevent you from filing a Chapter 13 case even if you have filed a bankruptcy previously. Call us for a free consultation if you have filed a previous case. We can help you understand your options.

Myth #9: You are not allowed to have a checking account if you file bankruptcy.

Wrong again. The bankruptcy code does not prevent you from keeping or opening a bank account. Most people keep the account that they had and continue to use it without interruption. Many times, it might be advisable to close an existing account prior to filing bankruptcy. If the bank or credit union where you have your account is also a creditor in your bankruptcy, you could find the funds in your account seized or frozen by that bank or credit union. In general, if you do not owe any money to the bank your account is at, there is no reason to close the account.

Myth #10: Taxes can not be wiped out in bankruptcy.

Many taxes can be eliminated in bankruptcy. Unfortunately, figuring out which can be discharged is no simple task. Eliminating taxes depends on how old the taxes are, when the returns were filed, and whether the taxes have been assessed, and the type of taxes. Both federal and state income taxes can be eliminated in bankruptcy. In some cases, you can use a Chapter 13 bankruptcy to force a payment plan on the IRS and stop interest and penalties from being added to the bill.

Myth #11: You must be broke to file bankruptcy.

No. The new bankruptcy law that went into effect at the end of 2005 does have a income means test that does prohibit some people from filing a Chapter 7 bankruptcy. The bankruptcy code does not require that you be unemployed, homeless, or own no property. With the help of Maxwell Attorneys LLC you can file bankruptcy without losing your job, giving up your home, or having your property taken away. Call 414-727-0123 today to learn how we can help you through the maze of bankruptcy. Don’t let myths be your source of information.