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Myths About Bankruptcy

 ” Bankruptcy-Only the Deadbeats file for bankruptcy.”

False, nothing is further from the truth.  There are some filers who will blatantly try to defraud their creditors by abusing the bankruptcy system. However, they account for a very small percentage of all filings.  The majority of people file for bankruptcy after a major, life-altering event. These  include divorce, illness, death of spouse, or loss of employment.   After suffering such an event, most people endure years of financial hardship, negative credit, emotional distress and embarrassment before filing bankruptcy.

“You don’t have to list all of your creditors in the petition.”

Bankruptcy is an all-in or all-out deal.  The bankruptcy code requires that you list all of your creditors to whom you owe money. Even if you choose not to list a certain creditor in your bankruptcy, many creditors will still find out.  Once they do, they will close all related accounts.  The unlisted debts will likewise be bound by the bankruptcy discharge.  For those wishing to repay their debts, nothing in the code prevents debtors from repaying creditors after their discharge.

“Since I’m going to file, I should max out my credit cards.”

Some think that if you are going to file bankruptcy, you might as well max out your credit cards. Why not reap as much financial benefit as you can.  Simply stated, “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.  These penalties 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.  If your debts were discharged in a prior Chapter 13 case, you cannot receive a discharge in a subsequent Chapter 13 unless it is filed at least two years after the date the first case was filed.  Because it usually takes three to five years to complete a Chapter 13 repayment plan and receive a discharge, you can typically file for another Chapter 13 and be eligible for a discharge immediately after your first case is closed. 

“If I wait long enough, I won’t have to repay my debts and the negative credit report will improve.”

I can’t tell you how many times clients have told me this. Many people actually take this “bury their head in the sand” approach and wait years for their creditors to go away. Only to learn 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 in the bud by filing before they grow out of proportion.

“I won’t be able to get credit again for 7 to 10 years after bankruptcy.”

If you are behind on credit card payment, facing judgments, foreclosures, garnishments, etc., you will not qualify for credit unless these debts are resolved.  Any credit you will get, 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, they are more creditworthy than a person laden with unresolved delinquent loans and judgments. Why? Although both persons would suffer from negative credit, the newly discharged person has NO debt. No obligations to repay. No pending garnishments, levies, etc.

If, you’ve struggled with your finances long enough and your creditors want more and more, call Pikunis Law for a FREE Consultation:  (856) 282-5505

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