Myth #1 – If I declare bankruptcy, they’ll take everything I own but the clothes on my back.

Although it is true that you may be required to surrender your property there are provisions within the Bankruptcy Code called exemptions that were placed there to protect your property.  Unless you own high value items with significant resale value over and above any debt you owe on them your personal possessions are probably protected.

Did you know that Walt Disney and Laugh-o-Gram Films were forced into bankruptcy in October 1923? Walt lost the rights to Oswald the Lucky Rabbit. At that point Walt thought his career was over and he along with his wife moved to California.  Walt at that point took advantage of his “fresh start” and created Mickey Mouse.  The rest is history as they say.  Walt Disney and many others, including President Harry Truman, had to look to the courts for assistance through bankruptcy to get their financial life back on track.

You will begin to receive credit offers before you are even discharged., and, if you spend prudently, you should be able to repair your credit within a few years.  A side effect of the bankruptcy is that you will probably be charged a higher interest rate or be required to make a larger down payment until you re-establish your credit.  How do you that?  Being smart is the first step. You do not run out and charge up lines of credit if it can possibly be avoided.  You pay your existing car payment or house payment on time each and every month. Not within the grace period or within the 30 days, on time each and every month and your credit will begin to rebuild.

There is no minumum debt requirement for a Chapter 7.  Every debtor’s situation is unique. For one person $5,000 worth of debt may be easily manageable.  For another debtor $5,000 may be strangling them each and every month and preventing them from putting food on the table or buying necessary prescription medications.  Peace of mind alone may make filing worthwhile if creditor harassment is making your life miserable.

Myth #5 – My spouse’s credit will be ruined .

You may well have separate lines of credit independent of your spouse.  If this is true and your spouse is not legally responsible for your debts, you can file an individual bankruptcy and not include your spouse.  This way you can discharge your debt and your spouse will KEEP his or her good credit.  Each situation is different, so it is a good idea to discuss obligations that might include your spouse with your bankruptcy attorney early in the process.

Media attention given the 2005 bankruptcy law changes was extensive and confusing.  A few people even said it would no longer be possible for most people to file bankruptcy.  Your creditors will love to have you to believe this; however it just is not true.  While it may be more difficult to qualify for a Chapter 7 bankruptcy, the new legislation has not eliminated the Chapter 7 provision.  Even if Chapter 7 is not available to you, a Chapter 13 bankrupcy may be very helpful.  The only way to know whether or not you qualify for Chapter 7 relief is to speak to an experienced bankruptcy lawyer.

The Bible says this about debt at Deuteronomy 15:1-2: At the end of every seven-year period you shall have a relaxation of debts, which shall be observed as follows. Every creditor shall relax his claim on what he has loaned his neighbor; he must not press his neighbor, his kinsman, because a relaxation in honor of the LORD has been proclaimed.

Throughout the Bible you will find many references to debts, usury (interest) and compassion for the poor.  If you want to see additional quotes, discussion and links pertaining to debt and usury in other religions, go to my Debt and the World’s Religions  page.

If your plan truly qualifies as an IRA or 401(k) or other pension plans your retirement will be protected from the creditors. This was reinforced by the Rousey v. Jacoway .  Because of this, people in difficult financial straits who suspect that bankruptcy is inevitable are advised not to borrow against retirement accounts to pay their unsecured creditors.

Whether you can file depends on a number of factors.  It depends on how long ago you previously filed.   Was the case actually filed more that 8 years ago?  Did you receive a discharge or was your case dismissed?  Do you qualify for a Chapter 7 today or would a Chapter 13 be better for you?  The only way to know for sure is to speak to an experienced bankruptcy lawyer.