Bankruptcy Myths

“Is filing for bankruptcy a bad idea? Or will it help me? I just don’t know what to do!”


For many, the thought of filing for bankruptcy is as scary as the bills themselves. However, bankruptcy’s reputation comes with a lot of embellishment, and sometimes just completely false statements. Misconceptions surround bankruptcy, yet those who understand bankruptcy as we do know that it’s nothing to fear. We’ve debunked some of the biggest bankruptcy myths below, so that you can learn more about the bankruptcy process and what it truly entails. When you’re ready to get your life back, call (417) 4NO-DEBT to see how we can help.

Myth:

Bankruptcy is for Bums!

The Truth:

The general view by the public is that people who file bankruptcy have been out racking up debt without ever intending to pay it back. This presumption could not be further from the truth. Our clients our good, hard-working people who have done everything in their power to avoid coming into our office. No one wants to have that difficult conversation about bankruptcy. The reality is that we live in a tough and expensive world, and hard times fall on everyone. The predominant reasons people file bankruptcy are: (1) high medical costs, (2) job loss, (3) divorce, and (4) small business failure. Bankruptcy is a way to get your life back in the most affordable manner.

Bankuptcy Myth: Bankruptcy is for bums!
Bankuptcy Myth: Bankruptcy will harm my credit score.
Myth:

Bankruptcy Will Harm My Credit Score

The Truth:

Bankruptcy itself does not actually hurt your credit score. Rather, it’s the missed payments, repossessions, high debt to income ratio, and similar things that occur prior to the bankruptcy that hurt your credit. In most cases, bankruptcy will very likely help you raise your credit score. If you have a bad score, bankruptcy can help you raise it faster than if you didn’t file. A report from the Federal Reserve Bank revealed that those who filed for Chapter 7 bankruptcy in 2010 had an average credit score of 538.2. In the six to eight months it took for their bankruptcies to be finalized, scores jumped up to an average of 620.

Myth:

I’ll Lose My House / Car / Name-That-Asset

The Truth:

Typically, you won’t lose any assets unless you want to. State exemption laws protect people’s assets. In some cases, the value of your assets is higher than what the exemption protects — this simply means you may need to file a Chapter 13 bankruptcy, rather than a Chapter 7. When you meet with us, we will let you know what assets may be at risk, and how you can keep them.

Bankuptcy Myth: I'll lose my house or my car if I file bankruptcy.
Bankuptcy Myth: I can't afford an attorney.
Myth:

I Can’t Afford an Attorney

The Truth:

30% of people who file bankruptcy without an attorney fail to receive a discharge of debt. Hiring a bankruptcy attorney is vitally important to make sure you actually get out of debt and don’t lose any assets. However, most people mistakenly believe the fees are high, and if you could afford to pay an attorney you probably wouldn’t be filing bankruptcy. This is why we are proud to offer client-friendly installment options on our fees. Most of our Chapter 7 cases get filed for $950 or lower, and some of our Chapter 13 cases get filed for under $500! See the Bankruptcy Costs page for further details.

Myth:

I Make Too Much Money to File Bankruptcy

The Truth:

The reality is that it’s not possible to make “too much money” to file for bankruptcy. Rather, your income may dictate which chapter you will need to file, and how much you will have to repay. We have clients that own businesses and make over a million dollars a year, but bankruptcy allows them to take control of their debt and pay back the unsecured portion (including tax debt) interest- and penalty-free. This allows them to more affordably pay back their debt, if minimum payments have gotten out of hand.

Bankuptcy Myth: I make too much money to file bankruptcy.
Bankuptcy Myth: I can't live my life while in bankruptcy.
Myth:

You Can’t “Live Life” in a Chapter 13

The Truth:

People always tell us the horror stories they’ve read or heard about how restrictive a Chapter 13 bankruptcy will be, such as you can’t buy or sell cars or houses, or get credit, or that you have someone looking through your bank accounts every month. This is simply not true. You can absolutely buy and sell assets, build your credit, and enjoy your life during a Chapter 13 bankruptcy. There are some things that need court approval before they can be done, but most of the time the court will allow them.

Myth:

Debt Settlement Programs Are a Better Option

The Truth:

Debt settlement programs sell their services by feeding on people’s fear of bankruptcy. They tell you that bankruptcy will ruin your credit for years. The reality is that debt settlement programs are almost always much worse for your credit than a bankruptcy. On top of being worse for your credit, these “debt relief” programs don’t protect you from lawsuits while you’re paying into them, they typically charge about 25% of your total unsecured debt (and pay themselves before doing any work), and they don’t tell you that you may increase your tax liability by settling your debt with creditors.

Bankuptcy Myth: Debt settlement programs are a better option.
Bankuptcy Myth: I can only file bankruptcy once in my life.
Myth:

You Can Only File Bankruptcy Once

The Truth:

There’s always a chance you may find yourself in a financial rut more than once in your lifetime. Luckily, you can file for bankruptcy more than once, should you need to. You can file for Chapter 7 bankruptcy once every 8 years. Chapter 13 reorganizations can be filed once every two years, but as it typically takes 3 to 5 years to complete a Chapter 13 repayment plan, you would normally file for a new Chapter 13 immediately after your previous reorganization ends. We know our clients would prefer not to go through this process more than once, so we do our best to teach our clients, not only how to get out of debt, but how to stay out as well.

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Please note that our attorneys are unable to serve areas outside of Southwest Missouri.