Most Popular Bankruptcy Myths
Bankruptcy not only carries a stigma, but is also clouded in myth. Bankruptcy myths arise mostly from the history of bankruptcy, but also from the legal complexity and subtle variations in the process. It is just not possible to know all the subtleties of bankruptcy law without studying it very carefully and for a long time. What makes it even more confusing when deciding whether to file bankuptcy is that these subtle differences vary from state to state.
These factors have an important bearing on the assumptions we make about the process, how it affects our financial standing, what happens after bankruptcy, and how other people will view us if we file for bankruptcy. As we can see from a close examination of bankruptcy in our modern society, many of the things we believe about bankruptcy are simply not true.
Myth #1 – Filing a Chapter 7 bankruptcy wipes out a person’s debts completely.
If it were this easy there would be a lot more bankruptcies filed. Certain debts such as child support, alimony, government-issued or government-guaranteed student loans, and debts applied as the result of fraud will not be forgiven in a Chapter 7. Also when property loans or car loans are secured by assets such as your house or car, those loans will normally remain in place.
A Chapter 7 bankruptcy involves the bankruptcy trustee gathering up and selling the debtor’s assets – other than those which are exempt or are pledged to specific creditors, for example a mortgage or car loan. The trustee then uses the proceeds of the sale of assets to pay legitimate creditors. Once this process is complete the debts to those creditors are fully discharged.
Myth #2 – Everyone in town will know I’ve filed bankruptcy.
It is true that the record of your bankruptcy is not hidden from the public. Anyone who wants to take the time to find out who is currently filing or who has filed for bankruptcy in the past can probably get hold of that information fairly easily.
But the simple fact is that unless you are someone the media has a reason to feature or highlight, it is extremely unlikely that the news about your bankruptcy filing will reach anyone other than your creditors and perhaps a few close friends and family members.
While bankruptcy is a public legal proceeding, there is no single place where you can find acentral list of people who have recently filed for bankruptcy. The numbers are so high, the list changes so often, and the jurisdictions are so diverse that unless a publication or directory has a significant staff dedicated to watching these figures they are simply not going to do it.
Myth #3 – When I file for bankruptcy everything I own will be sold.
This is probably one of the biggest concerns that people have about bankruptcy and the thing that frightens them from filing. They have vague pictures of debtors prison in their heads and often think will have to start from scratch – no house, no car, no furniture, no computer, ipod, camera, or even tools required to make a living.
If this was really the case you can imagine that almost no one would file for bankruptcy. Actual bankruptcy laws differ from state to state. But there are exemptions in every state|But every state has exemptions} that protect certain kinds of assets from being seized by your creditors or even the courts. These include your house, your car, household goods and clothing and money in certain types of retirement plans.
These are just three of the most popular myths about bankruptcy. There are many others. If you are considering filing for bankruptcy you would do well to seek the advice of a bankruptcy attorney who specializes in bankruptcy cases. There is better way to get an complete explanation of the laws in your state, and good, solid information about which course of action is best for you.
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