Bankruptcy Myths

When filing for a chapter 7 bankruptcy, you will hear a lot of stories and misperceptions from family, friends and co-workers. A recent survey has showed that most people are aware that Congress had passed a new bankruptcy law in 2005. However, most of these individuals were not aware of the specifics of the new law. Below, we uncover 10 myths.

1. It is impossible to file for bankruptcy under the new law

Although the amendments to the bankruptcy law in 2005 have added several requirements, most people that qualified under the previous law will still qualify now. Review our page Qualifying For Chapter 7 to determine whether you qualify and contact us for a further evaluation.

2. All debts can be discharged in a chapter 7 bankruptcy

Almost all unsecured debts (credit card, medical, personal loans and other debt) will be discharged, however, there remains a few categories of debts that cannot be discharged. Statistically, most individuals have unsecured debt that will be discharged in a chapter 7 bankruptcy. Review our Dischargeable v. Nondischargeable debt page for more info.

3. Consumers can file for a chapter 7 bankruptcy as many times as they want

Under the new bankruptcy law, you cannot file for a chapter 7 bankruptcy if you have filed for a chapter 7 bankruptcy in the previous 8 years. In other words, you must wait 8 years between filings. If you have previously received a chapter 13 discharge, you must wait 6 years before you can file a chapter 7.

4. My credit will be ruined for 10 years

Although the credit reporting agencies will report your bankruptcy for 10 years, you can begin to rebuild credit immediately after receiving the discharge. Most individuals have a better credit rating post-bankruptcy because of their "clean slate". You will be receiving credit card offers immediately after receiving the bankruptcy discharge. Creditors are aware of your "clean slate" and are also aware that you cannot file for another 8 years. Review our Rebuilding Credit After Bankruptcy page for more info.

5. I have "too little" or "too much" debt to qualify for a chapter 7 bankruptcy

The bankruptcy law allows individuals to seek relief under chapter 7 regardless of the amount of debt they have. Of course, it would be senseless to file for a chapter 7 bankruptcy if you have minimal debt. What may be too much debt for one person may be too little for another. The determination is subjective and varies according to an individual's ability to repay debt. Take advantage of our free consultation to determine if a chapter 7 bankruptcy is the right option for you.

6. If I file for bankruptcy, I may lose my job

Employers are not allowed to discriminate against your because you filed for bankruptcy. U.S.C. Section 525 prohibits them from doing so.

7. My spouse will be affected if I file for bankruptcy

New Jersey is not a community property state. This means that by virtue of one spouse filing for bankruptcy, in New Jersey, the other spouse will not be affected. There are only nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin). Although your spouse is not affected by your filing, if you and your spouse are jointly responsible for a debt and if you file for a chapter 7 bankruptcy, you may discharge the debt as to you only. The creditor can still proceed with collection efforts against your spouse.

8. Everyone will know that I have filed for bankruptcy

Although a bankruptcy is a public legal proceeding and it will be reported on your credit report, most people will not find out about your bankruptcy filing. The number of people filing for bankruptcy is so high that there is no publication that keeps track of all the filings.

9. If I know that I'm going to file for bankruptcy, I should max out my credit cards

This is called fraud. The bankruptcy trustee will determine whether you had an intention to repay your debts when they were incurred. If the trustee feels that your debt was incurred without an intention to repay it, they will deny a discharge of that debt.

10. I will lose everything I have

This is a misconception that most individuals have. Review our Property You Can Keep page for more info. You will be surprised how much you can keep when filing a chapter 7 bankruptcy.