Bankruptcy Myths - Grand Rapids MI Bankruptcy Attorney

Common Bankruptcy Myths and Misconceptions

If you are struggling with debt, you may be concerned about filing bankruptcy. You may have heard several negative things about the bankruptcy process, some of which may be untrue. At David Andersen & Associates, P.C., we can help discern the bankruptcy myths from facts so you can make an informed decision about your next steps.

Creditors Can Take Your House and Car

This is sometimes true but not usually. Filing a Chapter 13 bankruptcy stops all foreclosure and repossession actions. During the bankruptcy process, debt is reorganized into a repayment plan, often allowing debtors to pay back past due mortgages or loan payments and keep their house and car. However, some debtors may choose to surrender their house and car to relieve these debts and start anew. When you have questions, such as "Will I lose my house?", a bankruptcy attorney can help determine which option is best for you.

You Can Lose Your Job

The bankruptcy law prohibits employers from discriminating against consumers for filing a Chapter 7 or Chapter 13 bankruptcy.

You Can Never Borrow Money Again

Although bankruptcy sometimes reduces credit scores and stays on your public creditor report for up to 10 years, many lenders will finance you at a higher interest rate shortly after filing bankruptcy. In fact, it is common to get home loans one or two years after filing. In many situations the credit score may be better in the long run because much of the unpaid debt will be discharged and put in the past. Therefore, filing bankruptcy may be the only way to improve credit in the long run!

You Will Be Denied Government Benefits

The federal bankruptcy law provides protection against the denial of civil rights and government benefits for filing bankruptcy. This includes the right to borrow student loans, right to vote, right to government grants, right to hold permits and professional licenses, right to obtain Social Security and the right to unemployment benefits, among others.

You Can't File Bankruptcy if You're Employed

False. A Chapter 13 bankruptcy is ideal for people who are employed or have a steady income, but have simply fallen behind on payments. In fact, the reorganization plan is based on an individual's ability to pay, and is adjusted according to the amount of income coming in each month. Many people with jobs may also qualify for chapter 7 if they do not make enough money to pay back any portion of the debt.

You Can't File Bankruptcy on Credit Card Debt or Medical Bills

Bankruptcy is a federal procedure designed to help individuals rid themselves of debt and get a fresh start. Depending on the type of bankruptcy, a debtor can either reduce payments and consolidate debt (Chapter 13), or discharge and cancel debt without any payments (Chapter 7). If a debtor files a Chapter 7 bankruptcy, most debts are discharged, including credit card debt, medical bills and other unsecured debts. Some debts are not discharged in bankruptcy, including most taxes, student loans, support or divorce obligations, crimes or fraud.

Bankruptcy Can Be Denied

Due to the bankruptcy law changes in 2005, many people believe they no longer qualify for bankruptcy filing. In reality, 99 percent of the people who attempt to file bankruptcy achieve their debt relief goals. Only about 1% of cases filed receive any kind of challenge to the right to file bankruptcy and these challenges are usually based on a high income or suspicious circumstances that involve concealment of assets or commitment of fraud or crimes. Even if a case is challenged, a well prepared case may succeed and result in the debt relief that the client needs.

Bankruptcy Is Your Fault

Bankruptcy is not usually the result of poor life choices or bad financial decisions. It is often due to circumstances beyond your control, such as loss of job, medical expenses, family breakups, separation, divorce, an illness or the economy. You should not feel ashamed, but rather look forward to the opportunity to start anew.

For more information on bankruptcy myths, or to speak with an experienced bankruptcy lawyer, contact David Andersen & Associates, P.C., in Grand Rapids, Michigan. Call 616-784-1700 now!

We are a debt-relief agency helping people file for bankruptcy relief under the Bankruptcy Code.