One of our most popular blogs is entitled “The Top Chapter 7 Bankruptcy Myths: Debunked!” And as you might expect, we have mixed feelings about this.
On the one hand, we are pleased that more people are getting the FACTS they need to ultimately make a safe, informed decision on whether pursuing chapter 7 bankruptcy is in their best long-term financial interest. Obviously, we are not suggesting that people should make this major decision based solely on our (or any) blog post! However, we are gratified and inspired to see that people are relying on it as part of their research process.
Yet on the other hand, the popularity reveals a problem that we have seen get much worse over the decades due to the ease at which information is shared via the web: many people, including those who are well-meaning and legitimately trying to help, are either partly or wholly misinformed about how chapter 7 bankruptcy works — and how it does not. Sometimes, this ignorance is the result of not staying updated on changes to bankruptcy laws. But other times, this ignorance is, well, just plain ignorant! That is, the so-called facts being shared were wrong in the past, are wrong today, and will be wrong in the future.
Of course, while we are disappointed — and sometimes dismayed — by the sheer volume of bad chapter 7 bankruptcy-related “advice” floating on the web (or in workplaces around water coolers, chatting with neighbors over the backyard fence, and so on), our drive to educate and empower people is far stronger. To that end, here is part 2 of our series on debunking chapter 7 bankruptcy myths:
Myth 5: All states have the same bankruptcy laws and processes.
Fact: Different states have various rules, and assuming what applies in one state is automatically going to apply in another can be — and often is — a catastrophic error. For example, people in Florida who file for bankruptcy cannot lose their house. However, this is not necessarily the case in Pennsylvania.
Furthermore, some people are unaware that there are two sets of bankruptcy laws: federal and state. There are critical differences between them, and they do not focus on the same issues.
Myth 6: You should “strategically plan” your bankruptcy by maxing out your credit cards just prior to filing.
Fact: This is such an astonishingly massive mistake, that it is difficult to know where to begin!
If you follow this horrifically bad advice, then the first thing that will happen is your bankruptcy filing will be dismissed — which means the financial hole that you expected to start getting out of will only get deeper, and you will not be able to file again for at least 180 days. And if you think this is the worst of it, think again.
This is because borrowing money (which is essentially what using a credit card entails) with the intention to avoid paying the lender is not just unethical: it is fraudulent. This means there is a very good chance — assume 100% here — that your case will be handed over to for criminal prosecution.
Now, does this mean that filling up your car with a tank of gas a few days before you file for bankruptcy will be used as evidence of your intention to defraud the credit card company? No. As long as the expense is valid, reasonable, justifiable and passes the “common sense test,” then you will be fine. After all, gas is not a luxury, and neither are groceries. But buying a brand new iPhone or heading out for a weekend excursion to Las Vegas prior to a bankruptcy filing is sure to raise some suspicion, and warrant closer examination.
Myth 7: If you file for bankruptcy, you might as well put up a billboard because everyone will find out.
Fact: This myth is largely driven by companies and consultants that do not want people to file for chapter 7 bankruptcy, because it means they will lose a customer.
The truth is that unless you are famous or have a high-profile job, most people are not going to find out that you have filed for bankruptcy, and frankly, they have no interest in finding out. Bankruptcy is not a criminal matter — it is an administrative one. Close to a million people and businesses in the U.S. file for bankruptcy each year. It is hardly “breaking news.”
As we have described previously, those will definitely know about the filing (because they will be specifically notified) include:
- Each creditor listed in your filing.
- The three main credit bureaus: Equifax, TransUnion and Experian.
- Anyone who is jointly liable for debts per your filing.
- Plaintiffs in any current or future civil lawsuit.
In addition, the following people might (or might not) know:
- Defendants in a civil lawsuit — unlike plaintiffs they will not automatically be informed about the bankruptcy filing, but they could find out on their own.
- Your current employer if wage garnishment activity had started, and would therefore cease per the filing.
- Any future employers, landlords or lenders if you are asked questions about a past bankruptcy, or if you give them permission to access your credit score (a chapter 7 filing will remain on your score for 7 years.)
Filing for bankruptcy is a major decision that you should only make based on FACTS — not MYTHS. To learn more, contact the Law Office of Charles H. Huber today. We have been helping individuals file consumer bankruptcy cases for more than three decades. Our experience is your advantage!
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