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Thirteen Bankruptcy Myths

The thought of your bills and obligations getting unmanageable can be concerning – even terrifying. Often, my clients are afraid to admit, even to themselves, that bankruptcy may be the best option for them. Unfortunately, once they begin considering bankruptcy, whether it’s a Chapter 7 or a Chapter 13 bankruptcy, most of my ventura bankruptcy clients will do the natural thing, and do ventura bankruptcy research on Google.

Because the web, while filled with good advice, is also filled with bad advice. Clients also listen to their friends, who mean well, but are not equipped to offer advice on something as complicated and as emotional as bankruptcy.

These are the top Ventura bankruptcy myths I hear, over and over again:

Myth #1: I Will Never Be Able to Own Anything Again

FALSE. There are absolutely no restrictions on you owning property, a business, vehicles, or credit cards after your Ventura bankruptcy is completed.. I’ll discuss credit, and credit after bankruptcy, elsewhere in this site, or when you call me for your free bankruptcy consultation.  In fact, to the contrary, many VERY wealthy individuals made their fortunes AFTER bankruptcy. Donald Trump and Walt Disney included.

Myth #2: Filing Bankruptcy Will Destroy My Credit for 10 Years

FALSE. Your Santa Clarita Bankruptcy is reported on your credit report for up to 10 years (Although Chapter 13 will sometimes drop off after seven years), but, interestingly, that does not mean your Ventura bankruptcy will have a negative effect on your credit standing. In fact, most people’s credit score improves after they file Chapter 7 or Chapter 13 in Ventura County, or Santa Clarita.

Here’s why. By the time most people in Ventura County or Santa Clarita make an appointment to see a bankruptcy attorney, their credit is usually already in bad shape. Because of this, your ventura or santa clarita bankruptcy won’t do any more damage. You have nowhere to go but up, and filing bankruptcy can help eliminate your balances, stop the continuing negative credit reporting, and put you in a position to restore your good credit.

Also, I am the only bankruptcy attorney in Ventura County and Northern Los Angeles County who pays for all my bankruptcy clients to enroll in a program that will teach you how to rehab your credit after your bankruptcy.

Let’s be clear – THIS IS NOT CREDIT REPAIR. This is a 100% ethical, legal, moral way to increase your credit score, to a minimum 720, within two years after your bankruptcy. Since I pay for your enrollment, you pay nothing extra for this 14-week online credit improvement course.

Myth #3: I Will Never Get Credit Again

FALSE. Debtors who are currently in Chapter 13 can borrow money during the case; people who’ve filed Chapter 7 get flooded with offers for new credit cards and car loans after they get their discharge. This is not primo credit with primo rates, but credit is available.

Filing bankruptcy gets rid of debt, which puts you in a position to handle more credit, and this makes you look more attractive to would-be lenders. At first, lenders will want more money down and will want to charge you higher interest rates. However, over time, if you are careful, and keep your job, and start saving money, and pay your bills and credit cards on time, and continue doing the things that will put good marks on your credit report, your credit scores will get higher, and the terms you can get will improve. Many clients can qualify for mortgages, at regular rates, two years after their discharge.

Myth #4: Bankruptcy Costs Society Too Much

FALSE! Credit card issuers are massively profitable businesses despite the small percentage of loans discharged in bankruptcy. And the credit card companies price bankruptcies into their business mode. Believe me, your bankruptcy won’t hurt the credit card companies one bit. More important, the bankruptcy laws which permit you to completely discharge your credit card debt, help keep our country from building un-repayable debt to intolerable levels.

Bankruptcy also has a biblical basis. American bankruptcy law  has its genesis in longstanding biblical principles that debts should be routinely cancelled, for the well being of both the debtors who have fallen on hard times, and for the good of society as a whole. Biblical law required that all debts be “cancelled” every seventh year. See Leviticus Chapter 15.

Myth #5: I’m A Failure If I File Bankruptcy

FALSE: Divorce, job loss or illness are the cause of more than 90% of all bankruptcy filings. Bankruptcy is an essential safety valve that prevents good people from being buried by debts they can never repay.

Bankruptcy, whether it’s Chapter 7 or Chapter 13, is effectively a “do-over.” Take it.

The vast majority of the people who file for bankruptcy are good, honest, hard-working people, just like you and me, who file as a last resort, rather than lose their house, car or other assets. These good people have usually spent months or years struggling to pay the bills left over from some life-changing experience, such as a serious illness, the loss of a job, separation or divorce, a failed business venture, or some family emergency…or because they honestly and mistakenly fell into debt at a young age before they knew better . . . before they learned about money, credit, budgeting or how to manage their money.

In my experience, virtually everyone wants to pay their bills. You want to be able to know that you’ve done “the right thing” by repaying everyone. We’re all raised to be honorable and pay for what we received.

But the hard fact is that credit card companies, collection agencies, mortgage companies and other bill collectors make it difficult to pay debts, and just about impossible to catch up once you’ve fallen behind. That’s why the bankruptcy laws exist—to help honest people get a fresh financial start. Don’t believe me? Just miss one or two credit card payments – watch your rate skyrocket to 29.99%. Then call the card company and ask them to lower your rate. Aint’. Gonna. Happen.

Myth #6: I Will Lose Everything I Own When I File Bankruptcy.

FALSE. In over 98% of bankruptcy cases filed by individuals, the debtor (you) is able to keep almost everything you own. That’s because each state provides fairly generous exemptions which provide for assets that you can keep – and some assets, like your retirement funds, are beyond the reach of bankruptcy trustees and creditors.

Moreover, a chapter 13 bankruptcy is specifically designed to enable you to keep your assets while paying back only as much debt as you can reasonably afford.

Myth #7: Everyone Will Know I Have Filed for Bankruptcy

FALSE. It is likely that the only people who will know about a filing are your creditors and the people who you tell. While it’s true that your bankruptcy is a matter of public record, so many people have filed – about 2 million during any given year  – that unless someone is specifically trying to track down information about you, there is almost no chance that anyone will even know you filed.

Myth #8: I Can’t Afford to Hire an Attorney

FALSE. In a Chapter 13 case, a pool of money is set aside to pay your creditors based on how much you can afford to pay over the life of the plan. That amount is paid out whether or not you have an attorney. If you do have an attorney, the attorneys fees are paid out of this pool, and your creditors receive less money. In other words, there is absolutely no out of pocket difference to you to hire or not hire an attorney, so you might as well get expert representation, right?

In the case of a Chapter 7 bankruptcy, where your legal fees and costs must be paid up front, you can simply stop making your credit card payments for a period of time, instead setting aside these funds to pay legal and court costs.

Myth #9: It’s Really Hard to File for Bankruptcy

FALSE. In the hands of an experienced bankruptcy attorney, a bankruptcy case generally goes very smoothly. I handle all the details, leaving you free to concentrate on your family and loved ones, and on rebuilding your financial future.

Myth #10: There is a Minimum Amount of Debt Required to File Bankruptcy

FALSE. There is no minimum amount of debt—all that is required is that you are unable to pay your debts with your current income

Myth #11: I’m Married, So Both Me and My Spouse Must File for Bankruptcy

FALSE. In cases where both husband and wife have a lot of debt, it makes sense and saves money for both to file, but it is never a requirement. In fact, many cases, only one spouse files, and if you don’t have any joint debt, your filing will have no direct impact on your spouse’s credit.

Myth #12: I Can’t Get Rid of Back Taxes In Bankruptcy

FALSE. Certain federal, state and local taxes, inheritance taxes, and personal property taxes as well as overly burdensome interest and/or penalties can be mitigated under the bankruptcy laws. There are several qualifications that have to be met, but once these are met, relief is available.

Myth #13: My Medical bills can’t be discharged in bankruptcy.

FALSE. A variation on this myth is that “you can’t discharge credit card debt in bankruptcy.” This is what the creditors WANT you to believe, but it’s completely untrue. Almost all unsecured debt, like credit cards, personal loans, and medical bills, is fully dischargeable in bankruptcy.

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Estate Planning Attorney Eric Ridley