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The Truth About Bankruptcy, 3 Common Myths

The Truth About Bankruptcy, 3 Common Myths

By Christy Thompson

First, is it true that bankruptcy is dishonest?

Absolutely not. People are just wracked with guilt that theyre going to do something that goes against their nature, that its dishonest.

But for people who are considering bankruptcy, the fact is that they cant pay their bills or theyve actually stopped paying their bills. Its not for lack of want. Its for lack of money that they cant afford their bills.

Bankruptcy is a legal concept, and its been with us since the early 1800s. So everything about bankruptcy is a legal right thats provided by our Constitution, and it protects people. Thats what its there to do. And theres a process that insures that everything is truthful.

To be honest, a lot of people cant pay their bills. They shouldnt have to be harassed. And, when theyre facing a law suit over a debt or theyve been garnished, they really should consider that bankruptcy is a fresh start.

In fact, experts in bankruptcies, in particular law professors, will tell you that the concept of getting rid of your debt goes as far back as the Bible.

There is even a phrase that a lot of legal scholars talk about the fact that in bankruptcy it says every seven years a debtor should have a fresh start and that a creditor or someone who has lent to his neighbor or his brother should release those debts.

So whether you believe that or not, the point is that it does go back that far and it is legal. Its not dishonest. A lot of corporations--Macys being one of them, US Airways being another, America West, famous people like Jerry Lewis or Mickey Rooney--they have all filed bankruptcy.

So corporations, people that you think would be rich and famous have used the same protection that individuals and families should also use.

Next, is it true that Ill lose all of my property in a bankruptcy?

Absolutely not. They wouldnt take everything away from someone who is struggling. The concept behind bankruptcy is to give you a fresh start. So a fresh start would be impossible, obviously, if you didnt have anything.

Most people almost 90% never lose anything in their bankruptcy. Their cars are protected. Their houses are protected. Even the equity in their house up to $150,000 can be protected. Almost all retirement plans are protected. You could even have tools of the trade, be self-employed, and protect that.

So your personal items--your television, your sofa, your bedroom set--most are all protected. Its quite a bit of protection that you have. Most people can protect just about anything. With some good planning, those things that cant be protected can either become protected or you could sell things and actually have a little bit more cash and still go through bankruptcy.

So the concept that you lose everything and youd just be house poor without a car its not true.

And finally, is it true that I cannot own anything after bankruptcy?

This question is asked all the time, and that is just false. People can own anything after bankruptcy. Once youve filed bankruptcy, you can go out and acquire anything you want. The day you file your bankruptcy is the cutoff date. The rule in bankruptcy is they look back 90 days to see what youve acquired.

They dont look forward from the day that you file.

So, for example, I file a bankruptcy, and the day after I might choose to go buy a car, buy a house, or pay some medical bills. There are a lot of things that I can do after my bankruptcy is filed. So you can go out and acquire anything you choose to once youve filed.