MISCONCEPTION #1: Bankruptcy is dishonest. This is simply not true. The debt relief principles codified in the Bankruptcy Code are rooted in public policy and reflect society’s collective belief that everyone deserves a second chance. Bankruptcy protection is reserved for the “honest but unfortunate debtor.” There are numerous procedures in place to ensure that fraud is punished and only those who enter Bankruptcy Court in good faith are granted a discharge. Filing bankruptcy is not dishonest.
In fact, many experts trace the roots of our bankruptcy laws to 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. (Deut. 15:1–2)
MISCONCEPTION #2: I will lose all my property in a bankruptcy case. Most folks who file for bankruptcy are able to exempt or protect all of their property. The rumor that you automatically lose all your property the minute you file bankruptcy is nothing more than a myth.
MISCONCEPTION #3: I can’t own anything after bankruptcy. Not true.
MISCONCEPTION #4: I will never be able to establish credit after a bankruptcy. Not true. Today, many stores and banks actively market to people who have filed bankruptcy. Chicago mortgage companies do help applicants get new mortgages with a bankruptcy after two to three years. As a practical matter, you only file a bankruptcy when you can’t pay your bills. Because of that, your credit is probably already bad. A bankruptcy won’t make it any worse. Bankruptcy puts you in a better position to pay current bills and that should improve your chances of getting new credit.
MISCONCEPTION #5: Bankruptcy gets rid of all debts. Not so. Although most consumer and business debts are wiped out in bankruptcy, some debts are not affected. Certain debts can’t be eliminated in bankruptcy. They include child support, alimony, fines, restitution, some taxes, loans obtained by fraud, student loans, debts due to a DUI, and debts resulting from “willful and malicious” harm. Some of these can be handled effectively in a Chapter 13 bankruptcy.
MISCONCEPTION #6: I can protect my property by hiding it or giving it away before I file bankruptcy. No. It’s a crime to hide property. It’s also a crime to give property away without telling the Court in the bankruptcy filing. The trustee will seek to recover any property you wrongfully transferred prior to a bankruptcy filing. You could end up in jail by attempting to illegally hide or transfer property.
MISCONCEPTION #7: I will lose my job if I file bankruptcy. Not true. The bankruptcy code prohibits an employer from discriminating based on a bankruptcy filing. In nearly 10 years of helping people in bankruptcy cases, I have never even heard of someone losing a job because of a bankruptcy filing.
MISCONCEPTION #8: I filed a bankruptcy before, so I can’t file again. Incorrect. The law prohibits getting a chapter 7 discharge within 8 years of a previous chapter 7 discharge. But, even within the eight-year time period, a chapter 13 bankruptcy may be filed. Don’t hesitate to call me if you have filed a previous bankruptcy. You still have many options.
MISCONCEPTION #9: I am not allowed to have a checking account if I file bankruptcy. Incorrect. No rule stops you from keeping or opening a bank account. Most people keep the account that they had and continue to use it without interruption. In other cases, it may be smart to close an existing account prior to filing bankruptcy. That’s because the bank involved may be a creditor in the bankruptcy. In general, if you do not owe any money to the bank where your account is, there is no reason to close the account.
MISCONCEPTION #10: Taxes cannot be eliminated in bankruptcy. Wrong. Many taxes are eliminated in bankruptcy. There are several complex rules that apply. 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. And even in cases where the taxes cannot be eliminated, it’s often possible to force a payment plan on the IRS and stop interest and penalties from being added.
MISCONCEPTION #11: I must be broke to file bankruptcy. Not really. Although it would not make much sense to file for bankruptcy in Illinois when you are not in financial trouble, there is no requirement that a person be destitute. The bankruptcy code doesn’t require that you be unemployed, homeless, or own no property. In fact, you are able to file bankruptcy without losing your job, giving up your home, or having your property taken away.