Bankruptcy is such a taboo subject in American society that most people don’t know much about it besides its role in Wheel of Fortune game play. Because of the lack of discussion there is regarding bankruptcy, many people carry with them ideas about the process that do not reflect reality. In order to clear out the confusion for our readers, we contacted Macey Bankruptcy Law who were so kind as to provide us with the following list of seven major misconceptions about filing for bankruptcy:

Misconception #1: Bankruptcy is a death sentence to credit.

Indeed, traditional lines of credit are likely to be inaccessible by you post-bankruptcy. But the process will make you the target for high-interest credit card providers who will start sending you applications almost immediately. These can be key to rebuilding credit, but also dangerous to those just coming out of filing for bankruptcy.

Misconception #2: Bankruptcy causes you to lose everything.

One commonly held belief about bankruptcy is that by committing to the process you forfeit ownership of everything you own. Every state’s law is a little different, but a basic rule of thumb is that your home, household goods, and clothing are immune from government seizure. Your car can also be excluded, assuming it’s valued less than a certain set amount.

Misconception #3: Bankruptcy removes all debts.

Government-guaranteed or government-issued student loans, unpaid alimony and child support, and payments decided in court are all going to stick with you post-bankruptcy. If you borrowed from Uncle Sam to go to school or ripped off Aunt Edna to pay for a trip to South America, don’t expect bankruptcy to save you from paying them back.

Misconception #4: Bankruptcy is a one-time deal.

The minimum time one can re-file for chapter 7 bankruptcy is eight years, while re-filing chapter 13 requires a two year wait. If you plan on going from one to the other, the wait is four years. One way or another, bankruptcy can legally be filed a number of a times by a single party. Whether that’s a smart way to go through life is a different story.

Misconception #5: Bankruptcy is only available to a select number of people.

You may be surprised to learn that bankruptcy law is directly controlled by Congress per the Constitution. As such, the specifics over the years have maintained a strict adherence to the founding principle that bankruptcy should be available to anyone with the financial burdens that justify its existence.

Misconception #6: Bankruptcy does not include taxes.

It’s not easy having your back taxes forgiven during bankruptcy, but it’s not impossible. The tax burden needs to be no older than three years, and you better have every shred of documentation needed to back up your filing. The success rate is minimal, but many bankruptcy lawyers say it’s worth a shot, especially if you owe enormous amounts of money to Uncle Sam.

Misconception #7: Bankruptcy can cover premeditated bad purchases.

Using credit cards or committing other forms of borrowed spending with the intention of having it wiped clean by bankruptcy is a serious act of fraud and is not warmly welcomed by those entrusted with processing your claim. In fact, these people specifically look for signs of such criminal activity, so there’s absolutely no point to ever attempt such a short-sighted and selfish strategy.

Not much is said about the issue of bankruptcy because those who have filed don’t want to talk about it and those curious to know more don’t want to come off as being unwise with their money. The result is a lot of misinformation and misconceptions floating around in peoples minds regarding the process of bankruptcy. Whether you’ll never need to file or are debating doing do right now, it certainly pays to be aware of the facts when it comes to bankruptcy in the United States.

This entry was posted on Wednesday, January 18th, 2012 at 6:04 pm and is filed under Bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.