Phoenix Bankruptcy Myths
Myth #1: My credit is screwed for the next 10 years.
FALSE. While it is true that a bankruptcy will be on your credit report for up to 10 years, it DOESN’T AFFECT your score that long. Many clients are re-establishing their credit in 18 to 24 months! After your bankruptcy you should be in a better financial position than you have ever been especially due to the extremely positive effect of your “debt to income ratio”.
In 2005 the bankruptcy laws have significantly changed as well as our society. Many lenders and banks actively market to people who have a bankruptcy in their credit history. Most mortgage companies can assist applicants with a bankruptcy after two years. As a practical matter, most people filing for bankruptcy already have bad credit and generally speaking a bankruptcy won’t make it any worse. In fact, after the bankruptcy some clients even see an increase in their credit score.
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Myth #2: The Bankruptcy Court will come and take everything I own.
FALSE. Bankruptcy is your constitutional right and is therefore designed and intended to enable a “fresh start.” For whatever reason people think when they file a bankruptcy they don’t have a right to keep what they own. The truth is, that most of our clients have never had to give up anything they own. Federal bankruptcy laws allow Arizona to decide what property is protected for bankruptcy cases filed in Arizona. You can check out a detailed exemption list here for all property exempted by Arizona bankruptcy law. The short story is, in Arizona you are allowed to keep most all of your personal and household property, equity in your home up to $150,000, equity in a car of up to $5,000 per person filing ($10,000 for handicapped vehicles), most retirement plans (such as 401Ks and IRAs, etc.), and most tools you use for your business.
Myth #3: All I have to do to protect my property is hide or give it away before I file bankruptcy.
FALSE! It’s a serious crime to conceal property from the bankruptcy court. In fact, the United States Trustee’s office of the Department of Justice is rigorously investigating all bankruptcy cases at this time for fraud and misconduct. It's also a serious crime to give property away or transfer it without telling the Court in your bankruptcy petition & schedules. It’s also a serious crime to sell an asset for less than it’s current fair market value. The Court appointed trustee will seek to recover any property wrongfully transferred prior to a bankruptcy filing. The trustee can reverse any illegal transfer, recover the money, and recover the property. Illegal or preferential transfers could mean up to 5 years in federal prison, your bankruptcy case being kicked out, vigorous fines, etc. It is important to consult an experienced bankruptcy attorney prior to attempting any transfer of any assets prior to your bankruptcy.Myth #4: My bankruptcy will keep me from owning anything after bankruptcy.
FALSE. You can keep all of the property that is protected in the bankruptcy through the exemptions as outlined above, and generally anything you acquire after the bankruptcy. The day your bankruptcy is filed is the magic day. It is the single most important date of your bankruptcy. Generally, anything you earn after the filing date is yours with very little exceptions. For example, a portion of your next year’s tax return can potentially be subject to and property of the bankruptcy estate.
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Myth #5: Bankruptcy is immoral and just for people who want to cheat the system.
FALSE. For whatever reason many people feel they have to justify why they are filing for bankruptcy and how they are not like “everyone else” who filed. The truth of the matter is that almost everyone wants to pay off everybody they owe, but sometimes “life happens” and it becomes impossible to keep up with your financial obligations.
Unlike many countries, in the United States bankruptcy is a Constitutional right! Can you imagine? When you get overwhelmed by your debts you have a constitutional right to debt relief! Your constitutional bankruptcy right will protect you from all of your creditors. Any harassing calls must stop, as well as any wage garnishments, repossessions, lawsuits, and much more. It basically stops everything!
Our founding fathers were very religious and many professionals believe that our founding fathers developed bankruptcy laws from the Bible, where in the Old Testament it reads:
“At the end of every seven years thou shalt make a release. And this is the manner of the release: every creditor shall release that which he has lent unto his neighbor and his brother; because the Lord’s release hath been proclaimed.” (Deut. 15:1-2)
Myth #6: Since I have filed bankruptcy in the past I can’t file again.
FALSE. The current law prohibits someone from filing a new Chapter 7 bankruptcy within less than 8 years of a any previous filing. A new Chapter 13 filing is allowed back to back after a chapter 7 and is often called the “Chapter 20”. However, you will not be able to get a discharge from a Chapter 13 if you received a discharge from any other bankruptcy filing in the last 4 years. It is extremely important that you call one of our qualified attorneys to explore your options and to see if you are qualified for filing a bankruptcy.
Myth #7: Bankruptcy will discharge all of my debts.
FALSE. Although it is true that almost everything gets discharged or wiped out, some debts are just not allowed to be discharged. They include, but are not limited to: back/current child support, back/current alimony, criminal fines, fraudulently obtained loans, most student loans, If you have one of these debts then you should consult an experienced bankruptcy attorney to determine whether or not this debt can be discharged. For those debts that can’t be discharged at all you may want to consider filing a chapter 13 which can then manage them for you. Its extremely important that you consult with an experienced bankruptcy attorney for all debts that are not dischargeable.
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Myth #8: My TAX/IRS debt doesn’t get wiped out in bankruptcy.
FALSE. This myth is often misconstrued because it is a very complex issue. Its important to know that income taxes can in fact be wiped out in your bankruptcy depending on several issues such as: how old the debts are, etc. Property taxes get discharged with the property debt if you let the property go. Finally, a chapter 13 bankruptcy may be helpful if you have serious tax debt because it can be managed in the chapter 13. The IRS penalties, etc. will stop during the bankruptcy and allow you time to catch up and pay these back or completely off.
Myth #9: Bankruptcy will force me to close my checking account.
FALSE. While the bankruptcy rules don’t prevent a bank from closing your account it is very unlikely that they will. Its pretty normal for most of our clients to continuing using their same bank account.
However, sometimes it is wise to open an entirely new account to protect some funds from your creditors. Its important to consult an experienced bankruptcy attorney to see if you should open a new account.
Myth #10: Only poor people can and should file bankruptcy.
FALSE. It’s your constitutional right to file for bankruptcy and you can file regardless of how much money you are making or how much you have saved up or even invested. There is no bankruptcy rule that requires a person be dirt poor. That being said, it may not make much sense to file bankruptcy if you have significant assets that could potentially be seized to liquidate some of your debts. It is always important to seek legal advice from your attorney regarding your current financial situation and what could otherwise be done prior to filing bankruptcy.
Myth #11: If you are married both you and your spouse must file bankruptcy jointly.
FALSE. Because we live in a “community property” state we have some special rules that seem to confuse almost everyone. The short story is that you and your spouse may very well be better off if you both file bankruptcy due to our community property laws, but it may not always be feasible or necessary. Consult an experienced bankruptcy attorney to determine whether you and your spouse should file bankruptcy.
Myth #12: You don’t have to go bankrupt on everything.
FALSE. This one is tricky. It is certainly true that you can still keep your house and vehicles under certain conditions and not be forced to let them go. However, you do in fact have to list ALL of your debts and ALL of your assets on your bankruptcy paperwork. Then the attorney goes through and exempts certain assets or “reaffirms” certain debts you wish to keep (i.e. your car, house, etc.).
Myth #13: Everyone will find out that I filed bankruptcy.
FALSE. Although your bankruptcy will eventually become part of a public record, no one will ever know you filed unless you tell them or they haul over the court house and do a public records search!
Myth #14: Creditors will still harass me after I file my bankruptcy.
FALSE. Nothing could be further from the truth! As soon as you file the court issues an order telling all of your creditors to stop contacting you. If any of them do they are in direct violation of a court order and can be fined for up to $1000 each time they contact you.