Misconception #1: Bankruptcy is dishonest.
Not true. Most people honestly want to pay their bills. Sometimes things happen that make it impossible. Bankruptcy is a legal right that is provided for in the United States Constitution. Bankruptcy is a right that protects honest people who are unable to pay their bills from harassment, lawsuits, wage garnishment and other creditor actions. Bankruptcy allows a fresh start. Many experts trace the roots of our bankruptcy laws to the Bible which says: "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) Bankruptcy has been used many of our nation's largest companies like Texaco, America West Airlines, Macy's, T.W.A., Pan Am, A. H. Robbins, Penn Central, Wards, as well as famous people like Jerry Lewis, Mickey Rooney, Tammy Wynette and former Treasury Secretary John Connally. The same laws that are routinely used by corporate America, and the rich and famous, can protect individuals and families.
Misconception #2: I will lose all my property in a bankruptcy case.
Not so. The bankruptcy laws are designed to allow a fresh start. A fresh start would be impossible if you would lose all your property in bankruptcy. The fact is that most people don't lose anything in their bankruptcy. The bankruptcy law allows the State government to decide what property is protected for bankruptcy cases filed in its state. In New Jersey you are allowed to keep most personal and household property, equity in your home up to $100,000, some equity in a car, most retirement plans, and many tools of the trade.
Misconception #3: I can't own anything after bankruptcy.
Not true. Many people believe they cannot own anything after a bankruptcy. You can keep the property that is protected in the bankruptcy, and generally anything you acquire after the bankruptcy. The day your bankruptcy is filed acts as a "cut-off " date. Anything you earn after the filing date is yours. Anything that you own or have owed to you before the case is filed is subject to the bankruptcy court's rules. Most normal belongings are protected (as outlined above).
Misconception #4: I will never be able to establish credit after a bankruptcy.
Not true. Like many myths, there is a grain of truth to this one. Years ago it was almost impossible to rebuild credit after a bankruptcy. It took a long time. Times have changed. Many stores and banks actively market to people who have filed bankruptcy. Most mortgage companies can assist applicants with a bankruptcy after two to three years. As a practical matter, you won't file a bankruptcy unless you can't pay your bills. Because of that, your credit is probably already bad. A bankruptcy won't make it any worse. After the bankruptcy you are likely to be in a better position to pay current bills and that should improve your chances of getting new credit.Continue Reading