BANKRUPTCY MYTHS

If you are feeling overwhelmed by insurmountable debt, it may be time to consider bankruptcy. At DeMarco-Mitchell, PLLC, our attorneys have over 50 years of combined experience handling bankruptcy cases. With a Board Certified bankruptcy lawyer on our team who has demonstrated his proficiency in the field of bankruptcy law, you can be confident that your bankruptcy case is in very good hands.

Nonetheless, many people are fearful of even the thought of bankruptcy. The truth of the matter, such fears are more harmful than helpful. Those irrational fears cause people to wait way too long – and in some cases prevent them from obtaining the relief they deserve if they had only looked into bankruptcy earlier.

We have complied a list of some common bankruptcy myths circulating around. In so doing, we hope to dispel these myths so you can gain a clearer understanding of what bankruptcy can and cannot do. If, after reviewing this website you believe bankruptcy might present a solution to your financial challenges, please don’t hesitate to contact our office directly to arrange a free consultation with a Plano bankruptcy lawyer from our firm.

I won’t be able to get a credit card or auto loan.

The contrary is reality. It won’t be long before you start getting credit card offers again. While they will come from subprime lenders who charge high interest rates, there are numerous lenders who will provide credit. While we don’t recommend racking up credit card debt immediately after filing bankruptcy, credit cards are a necessary tool for rebuilding your credit after bankruptcy. Use these credit cards to incur a small monthly balance each month (never exceed fifty percent of your credit limit in charges) and pay it of every month. This will help you to rebuild your credit. It is very important you proactively rebuild your credit after filing for bankruptcy. In so doing, you will get back on your “financial feet” much faster.

My credit will be ruined forever.

This is absolutely not true! Shortly after a bankruptcy discharge it is not difficult to get a secured credit card or another credit card. These offers will come in the mail and many more can be found by shopping credit card offers online. Assuming a debtor pays all bills on time and follows a few simple credit rebuilding strategies, that person will be on track to obtaining a credit score in the 700s long before the bankruptcy falls off their credit. All it takes is a little discipline and living within one’s means to rebuild credit after a bankruptcy.

I will lose everything in a Chapter 7 bankruptcy.

While Chapter 7 is commonly referred to as a “liquidation” or straight bankruptcy, most Chapter 7 cases are no-asset cases thanks to both federal and state exemptions. These exemptions allow debtors to keep certain assets such as their home, car, retirement, household goods, clothing and, assuming one uses the federal exemption scheme (which is allowed in Texas) money sitting in a bank account (certain limits apply). This means that most Chapter 7 debtors don’t have to lose anything.

All debts can be wiped out in a Chapter 7 bankruptcy.

Don’t we wish! While a Chapter 7 bankruptcy will discharge most debts, it can’t wipe them all out. Some of the more common debts that cannot be discharged or erased in a bankruptcy include child support, alimony, student loans, victim restitution awards, and debts incurred as a result of fraud.

Taxes are NEVER dischargeable.

Once again, FALSE. It is true there are limitations on the dischargeability of certain taxes, but under certain conditions your tax debt is dischargeable. The following is a list of the most common taxes that are NOT dischargeable under bankruptcy. Please note the list is not complete and it is often difficult to discern whether your specific back tax is dischargeable.

• Income Taxes Where the Return Last Came Due within Three Years Prior to the Bankruptcy.

• Income Taxes Where the Debtor: (1) Failed to File Returns or (2) Filed Returns Late within Two Years Prior to Bankruptcy.

• Taxes Assessed within 240 Days Prior to Bankruptcy.

• Certain Property Taxes Payable within One Year before Bankruptcy.

• Trust fund taxes (withholding and sales taxes).

• Fraudulent Tax Returns or for a “Willful Attempt in Any Manner to Evade or Defeat Taxes”.

Both you and your spouse must file bankruptcy together.

This is simply not true. While it is often advantageous for both of you to file, it is not required. Further, the filing of a bankruptcy by one spouse will have no direct impact upon the credit standing of the non-filing spouse.

Everyone will know I filed bankruptcy.

Not likely. If you are not in the public limelight, no one is likely to know you filed bankruptcy. While the filing of bankruptcy is a public record, it is not commonly reported in any Texas newspaper. Anyone looking to see if you filed bankruptcy would have to look pretty hard.

I’m too broke to hire a bankruptcy attorney.

Surprisingly, this is not true.

If you are filing Chapter 13 bankruptcy, most attorney’s will only charge a nominal fee up front (usually $500.00) plus the court filing fee. The remainder of the fee in the chapter 13 is dictated by the local rule of that bankruptcy court, but usually do not exceed $4,000.00, which fees are paid through your Chapter 13 plan. Even better, the practical effect of this is that your creditors receive less money so your attorney can get paid.

If you are filing for Chapter 7 bankruptcy where the attorney fee needs to be paid up front, you are not without options. First, note that most lawyers charge less for a Chapter 7 bankruptcy than a Chapter 13 bankruptcy. Second, you are filing for bankruptcy, you no longer need to keep paying your credit card bills and other unsecured obligations. This will initially enable you to find the funds to pay your bankruptcy attorney, and subsequently to start paying for those necessities you have been doing without because of the mounting credit card debt.