MYTH #1

I must be dead broke to file for bankruptcy

This is completely false and unwise!!!
It is better to consult with a bankruptcy attorney to learn how to protect your income and your assets before you are completely penniless.
A fresh start doesn't mean dead broke.

MYTH #2

Bankruptcy ruins credit scores

Financial trouble ruins credit. Credit scores begin to plunge as soon as assets run out to keep payments going. Negative activity stays on your credit report for 7 years or longer if renewed by creditor.

Bankruptcy stays on your credit history for 10 years. However, with Bankruptcy you eliminate debt and have a chance to start over. The score begins to recover even before the bankruptcy is erased from the report.

Depending on your circumstances, scores can actually increase 100-200 points after filing. If you now for example earn $40,000 a year and have accumulated credit card debt of $50,000, your debt to income ratio (DTI) makes it virtually impossible to obtain financing (like a car loan). After bankruptcy discharge, your income may stay the same but not your debt. You are actually a better credit risk post bankruptcy.

MYTH #3

If I file for bankrutpcy I will lose my home/car.

Not necessarily and in most cases not at all. The goal of bankruptcy is to protect you and your assets.

If you are behind on mortgage payments and need time to catch up, Chapter 13 allows you to reorganize your debts and catch up on the arrears (the amount of behind payments) over a period of 3-5 years. Once in Chapter 13 bankruptcy, even if you are significantly behind on the loan(s), the lenders have no choice but to cooperate so long as you meet your objections and maintain the planned payment arrangement.

If you are having trouble making payments but have been paying down credit card debt, Chapter 7 will free up cash so that you can stay current on the car.

If the equity in the home/car (equity: value of the item minus any loans on it) is negative or below the "exemption" limits you can keep the asset as long as you are current on the payments.

MYTH #4

You should max-out all of your credit cards before you file for bankruptcy.

If you purposefully max out your credit cards intending to declare bankruptcy, you commit a fraud. Consult a bankruptcy attorney as soon as your debt goes out of control.

If you know you can't repay or decided to declare bankruptcy, stop using the credit cards.

MYTH #5

You should deplete your retirement funds (401K, IRA, pension) before declaring bankruptcy.

Absolutely Not! Your retirement funds are protected from the grips of creditors. Be prudent with them. These funds are considered untouchable and should be kept for their intended purpose - your retirement - not handed over to creditors.