Misconceptions About Bankruptcy

We hear a lot of ideas about the process and results of filing bankruptcy that are not true or are not always true in every case. The following are things that we have heard people say and an attempt to explain why that may or may not be the case:

I make too much money to be allowed to file bankruptcy.

There are income limitations to filing bankruptcy but just because you may make more than an average person does, does not mean you cannot file for protection under the bankruptcy code.

I do not have enough debt to file bankruptcy.

There are no minimum debt requirement to file.

If I file bankruptcy, I will lose my car/house/possessions/etc.

Most of the people who file bankruptcy file because they want to keep a house or car that creditors are trying to take. The fact that you own property does not exclude you from filing bankruptcy and it does not mean you will lose everything if you file. There are exemptions in bankruptcy to allow you to keep your property. In most cases, it is your choice whether you want to keep your property or surrender it.

I cannot get rid of my student loan obligations in bankruptcy.

Although somewhat rare, student loan obligations may be discharged in bankruptcy. If you can prove hardship, you may be able to discharge your student loans.

Filing bankruptcy will ruin my credit.

Although your bankruptcy filing will appear on your credit report, so do all the debts you owe, late payments, and judgments against you. So, even though a bankruptcy filing is not necessarily a good thing on your credit report, it is likely not any worse than the other negative information already on your credit report.

If I file a Chapter 13 bankruptcy, I will have to pay back all my creditors.

Sometimes people who file a Chapter 13 bankruptcy will have to pay back some or all of their debt, but this is not always the case. You are required to contribute your monthly disposable income into your Chapter 13 Plan. This could mean you pay only your attorney and/or car loan(s) in the plan or it could mean you pay everyone. It all depends on your situation.

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