Dispelling Some of the Common Myths and Misconceptions
Bankruptcy – whether it’s chapter 7 or chapter 13 – has a lot of negative connotations, and a lot of fears and myths surrounding it. But when you simply can’t pay your obligations with your current income, filing bankruptcy in Arizona is a legal, ethical, and dignified way to make a fresh start.
At The Pew Law Center, PLLC, we are Arizona’s premier debt relief firm. In this series of blog articles, we will help dispel the top 12 myths about bankruptcy.
Myth #1: Everyone will know
It’s true that bankruptcy is a matter of public record, but unless you are enough of a celebrity that the news picks up your story, chances are slim that anyone but your creditors will know about your bankruptcy.
Myth #2: Chapter 7 bankruptcy wipes out all of my debts
While most of your debts are wiped clean in a chapter 7 bankruptcy, certain types of debts are not. These include student loans, child and spousal support, and certain judgments against you arising from fraudulent or negligent behavior.
Myth #3: I will lose everything
Many people are afraid to file for bankruptcy because they are afraid they will end up wearing an empty barrel and living in a cardboard box. Arizona has exemptions that allow you to keep your clothing and other personal belongings and even your home and car (up to a certain value). Contact an experienced bankruptcy attorney to find out what assets you will be allowed to keep.
Myth #4: I will never be able to get credit again
You will be able to get credit again very soon, but it will be at a very high interest rate. If you handle the credit responsibly, you will receive lower and lower rates. After 10 years a chapter 7 bankruptcy will fall off of your credit record completely, and a chapter 13 bankruptcy will fall off after 7 years.
Myth #5: My spouse and I both have to file bankruptcy
Maybe, and maybe not. This may be complicated as Arizona is a community property state. If one spouse has a large amount of debt in his or her name only, he or she may file alone. However, if both spouses are listed on the majority of the debt it is wiser to file jointly, since the creditor can go after the full amount from the other partner if they don’t file for bankruptcy, too. Due to the complicated nature of this issue, please contact a qualified bankruptcy attorney to discuss options.
Myth #6: Changes in the law have made it too hard to file for bankruptcy
While recent changes in the law have added a few more requirements for filing bankruptcy, it is not difficult to do so. Hiring an experienced bankruptcy attorney will help make the process even easier.
Myth #7: You have to be a real deadbeat to file for bankruptcy
Stereotypes aside, the vast majority of bankruptcy filers were forced into a difficult economic situation by an unexpected job loss, divorce, or devastating illness. No matter what the reason, bankruptcy is a legal right for people to start over when they can’t pay their bills.
Myth #8: I don’t have to include all of my creditors in my bankruptcy
Even if you want to pay them back someday, you still need to include all of your creditors. If you want to pay some of them back after you get back on your feet, you still have a right to do so. –but they do not have the right to ask you to.
Myth #9: You can’t get rid of tax debts in a bankruptcy
Yes and no. There is such a thing as a tax bankruptcy. To be eligible, you need to have filed all of your returns and your tax debt must be at least three years old. Check with an experienced tax / bankruptcy attorney to find out if you are eligible.
Myth #10: You can only file bankruptcy once in your lifetime
You can file for chapter 7 bankruptcy every eight years and chapter 13 bankruptcy more often than that, as long as you only have one case open at a time.
Myth #11: I should max out all of my credit cards before I file bankruptcy
Not a good idea. Bankruptcy judges know to look for this behavior, and it is considered fraud.