Top 10 Bankruptcy Myths

    1. People who file for bankruptcy are financially irresponsible.

      FALSE

      • Individuals and corporations file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy for a large variety of reasons.  These reasons are often related to unexpected, and, in many cases, unpreventable, expenses.
      • For example, individuals may need to file bankruptcy due to unexpected medical bills or a sudden death in the family.  Filing for bankruptcy can also often be necessary after a divorce.
      • Corporations may need to file commercial bankruptcy under Chapter 7 or Chapter 11 because one of their largest customers suddenly went out of business or business slowed down due to sudden changes in their industry such as the financial meltdown in 2008.
    2. Bankruptcy discharges all past debts

      FALSE

      • Not all debts are discharged in bankruptcy.  Certain debts receive a priority in bankruptcy proceedings such as: IRS and Franchise Tax Board liens against real property or certain IRS and Franchise Tax Board debt that was incurred within the last 3 years.
      • Other Debts that cannot be discharged include certain claims for past wages owed to employees, domestic support obligations such as alimony and child support, certain fines or penalties owed to the government, and debts related to fraud or other types of wrongdoing.
      • This is not a complete list of all debts that cannot be discharged in bankruptcy.  For specific questions on whether or not a specific debt can be discharged in bankruptcy, speak to a Los Angeles bankruptcy attorney today.

  1. If you spend recklessly right before bankruptcy, you won’t have to pay that money back

    FALSE

    • There is a presumption under the bankruptcy code that certain cash advances withdrawn within 70 days before the filing of a bankruptcy petition are non-dischargeable and therefore must be paid back even after you receive your discharge in bankruptcy.
    • There is also a presumption under the bankruptcy code that luxury goods purchased on credit with 90 days before the bankruptcy of a bankruptcy petition are non-dischargeable and therefore must be paid back even after you receive your discharge in bankruptcy.
    • Does this mean that as long as I wait at least 90 days to file for bankruptcy protection under Chapter 7, 11, or 13 that I will receive a discharge on all of my debts?
    • No, not all debts are discharged in bankruptcy but it is a good idea NOT to make large purchases that you knowingly cannot afford to repay during the 90 day period prior to filing for bankruptcy petition.
  2. Bankruptcy permanently ruins your credit

    FALSE

    • Filing for bankruptcy protection will not remain on your credit report forever.  A Chapter 7 or Chapter 11 Bankruptcy filing typically remains on your credit for 10 years while a discharged Chapter 13 bankruptcy typically lasts on your credit report for 7 years.
    • Individuals who file for bankruptcy typically begin to rebuild their credit shortly after filing for bankruptcy protection.  For example, it is not uncommon for individuals who file for Chapter 7 bankruptcy to get solicited for new credit card offers only months after receiving their Chapter 7 discharge.
    • Additionally, individuals should keep in mind that by the time they have seriously considered bankruptcy as an option to their financial problems, they have often already faced foreclosure, lawsuits, repossessions, and their credit has already been severely impacted.
    • By filing for bankruptcy protection, individuals can get a fresh start by permanently removing most debts which may allow them to finally rebuild their credit over time.
  3. You can’t file bankruptcy if you have a job

    FALSE

    • Most individuals are employed when they file bankruptcy and their bankruptcy filings almost always have zero impact on their job.  In fact, there are federal bankruptcy laws which protect individuals who have filed for bankruptcy protection against discriminatory treatment by current or future employers.  Under 11 U.S.C. § 525, no private employer may terminate the employment of, or discriminate with respect to employment against, and individual who has filed for bankruptcy solely because such individual has: (1) filed for bankruptcy protection; (2) has been granted or denied a discharge; and (3) has not paid a debt that was discharged by virtue of filing for bankruptcy protection.
    • Even individuals who are employed in very successful positions often require bankruptcy to help pay down or discharge debt.  Some Individuals that make too much too much money based on a test congress created called a Means Test may not qualify for a Chapter 7 bankruptcy but they may qualify for either a Chapter 13 or Chapter 11 bankruptcy.
    • Therefore, whether or not you are employed may determine which type of bankruptcy filing is right for you, but certainly does not disqualify you from getting the fresh start you need. Contact a Los Angeles Bankruptcy attorney today to determine if bankruptcy is the right option for you.
  4. If you’re Married, Both you and Your Spouse Have to File for Bankruptcy

    FALSE

    • Although a joint bankruptcy filing of both a husband and spouse may be beneficial, it is not required.  One of the spouses alone can file for bankruptcy protection and in some cases both partners will still benefit from the bankruptcy filing.  For example, in Chapter 13 bankruptcy, there is a co-debtor stay that applies to protect both the Debtor and his or her non-filing spouse from protection against collection activity on a debt including lawsuits, garnishment, foreclosures, and repossessions.  There is no co-debtor stay under either Chapter 7 or Chapter 11 bankruptcy.
    • Some individuals choose to file separately for a variety of reasons. One of the most common reasons is that all or most of the debt between the two spouses is held by only one of the spouses in which case one spouse chooses not to file to preserve his or her credit rating.
    • Even if both spouses are on title to a home, in most instances, the bankruptcy filing will still prevent a foreclosure sale from proceeding and may continue to protect the property from foreclosure activity during the course of the bankruptcy proceedings.
  5. Financially Distressed Individuals Can’t Afford to Hire an Attorney

    FALSE

    • Although some law firms require all attorneys fees to be paid up-front, the bankruptcy attorneys of Ure Law Firm provide payment plans and in some cases, little to no up-front fees prior to filing your bankruptcy case.  We work with our clients to come up with payment options that fit around their financial situation and needs.  We also offer free consultations.
    • Although hiring an attorney is an additional expense, not hiring an attorney may ultimately cost you much more than the cost of attorney’s fees.  For example, under bankruptcy, there are federal and state court exemptions which serve to protect all or some of your assets when you file for bankruptcy protection.  It takes an experienced bankruptcy attorney to understand how to maximize these exemptions to allow you to keep as many of your assets as possible.  Additionally, filing the wrong-type of bankruptcy may result in the loss of assets including a home or business.
  6. You Lose Everything You Own In Bankruptcy

    FALSE

    • When you file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy, there are federal and state court exemptions which serve to protect all or some of your assets when you file for bankruptcy protection.
    • One of the most powerful exemptions is the homestead exemption.
    • For example, In California,
      • Single homeowners who are not disabled may exempt up to $75,000 of the equity in their home or other property covered by the homestead exemption.
      • You may exempt up to $100,000 if you live with a family member;
      • $175,000 if you are 65 or older, or physically or mentally disabled;
      • $175,000 if you are 55 or older, single, and earn a gross annual income under $25,000 or are married and earn a gross annual income under $35,000 and creditors seek to force the sale of your home.
      • If you are married but separated, you may claim the homestead exemption in community property occupied by your spouse.
    • In California, even if you don’t own a home, the homestead exemption can be used to protect other assets that you own.
    • The other most common exemptions are those for automobiles, bank accounts, jewelry, business equipment, and household goods and furniture.  Additionally, qualified retirement income such as 401(k), IRAs, and most pension income are fully exempt.
    • Exemptions are powerful tools for those facing financial distress.  However, it takes an experienced bankruptcy attorney to understand how to maximize these exemptions to allow you to keep as many of your assets as possible.  Call or e-mail the Los Angeles bankruptcy attorneys of Ure Law Firm today to see how we can make exemptions work for you.
  7. Bankruptcy represents personal or moral failure

    FALSE

    • Some of the most successful individuals and corporations have filed or emerged from bankruptcy protection.  Abraham Lincoln, Walt Disney, and H.J. Heinz all filed for bankruptcy protection.  Although Henry Ford of the Detroit Automobile Company filed for bankruptcy protection in 1901, the company emerged from bankruptcy protection as the Henry Ford Motor Company in 1903.
    • Individuals and corporations file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy for a large variety of reasons.  These reasons are often related to unexpected, and, in many cases, unpreventable, expenses.  For example, individuals may need to file bankruptcy due to unexpected medical bills or a sudden death in the family.  Filing for bankruptcy can also often be necessary after a divorce.
    • In some instances, individuals or corporations still pay back all or a significant portion of their debt but simply need an extended period of time in order to do so.
  8. After filing for Bankruptcy, you will never be able to own anything again

    FALSE

    • When you file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy, there are federal and state court exemptions which serve to protect all or some of your assets when you file for bankruptcy protection.  Therefore, you may be able to emerge from bankruptcy and keep all of the assets you had prior to filing for bankruptcy attention including a home or automobiles.
    • Additionally, individuals who file for bankruptcy typically begin to rebuild their credit shortly after filing for bankruptcy protection.  For example, it is not uncommon for individuals who file for Chapter 7 bankruptcy to get solicited for new credit card offers only months after receiving their Chapter 7 discharge.