TOP 10 BANKRUPTCY MYTHS BUSTED

        As an Indiana bankruptcy attorney, I have the pleasure of meeting with people in debt on a day to day basis at HALCOMB SINGLER, LLP.  In speaking with these folks, I find that there are many common myths that people believe to be true because their brother, friend or coworker told them.  As a word of warning for those considering bankruptcy, I would caution you from believing what your non-attorney contacts tell you about bankruptcy.  Heck, I would caution you from taking the advice of a non-bankruptcy attorney.  Bankruptcy law is complex and does not always follow common sense as most people would perceive it.

       So, I'm going to list some common myths that I hear and explain them.  I encourage those of you who are reading this blog to list myths you have heard in the comments so I can, as they would say on the Discovery Channel, "bust" them, or let you know that they are, in fact, true.

MYTH #1:  THERE IS SUCH A THING AS "MEDICAL BANKRUPTCY"
                  
        FALSE.  Yes.  Many people find themselves in debt due to illness or injury.  This is a very common reason that causes the need to file for bankruptcy protection.  However, there is no chapter of bankruptcy for medical bills.  This does not mean that medical bills are not included in bankruptcy, but it means that most individuals simply file a Chapter 7 or Chapter 13 bankruptcy just any any other debtor with no medical bills.

MYTH #2:  THERE WILL BE A SIGN IN MY FRONT YARD STATING THAT I FILED FOR BANKRUPTCY

        FALSE.  While bankruptcy is public record, there is no sign put in your front yard that brands you a debtor with a scarlet "B."  In the Southern District of Indiana, the court where Indianapolis metro residents file bankruptcy, anyone looking to see a copy of your bankruptcy must get online, setup an account and password and pay .08 per page to view your bankruptcy petition.  The only thing even slightly true about this myth is that if you surrender your home in your bankruptcy the bank will come by at some point after you have moved out and put paperwork in the window and eventually a "For Sale" sign, but by that point you won't live there anymore.

MYTH #3:  I WILL NEVER BE ABLE TO BUY A HOUSE (OR BUY ANOTHER HOUSE)

        FALSE.  True, you will likely not be able to turn around immediately after filing bankruptcy and receive financing to purchase a house.  However, if you are like most of my clients your credit is already poor by the time you meet with me and you would not be able to qualify to purchase a house irregardless of whether you file bankruptcy.  According to one mortgage broker I spoke with lately, if you file a Chapter 7 it will typically take about 2 years before you are able to qualify to get an FHA mortgage and if you surrendered a house in a Chapter 7, it would take about 3 years.  However, this information has only come from one broker and should not be relied upon...you should speak to your own mortgage broker because the lending climate is constantly changing.  The bottom line is that by filing a bankruptcy you are not forever banned from financing a home.

MYTH #4:  ALL OF MY "STUFF" WILL BE SOLD TO PAY MY DEBTS

        FALSE.  If there was a font or letter case that was more convincing that bold capital letters I would use it here, because this may be the most common myth.  In a Chapter 7 bankruptcy in Indiana (so long as you have lived in Indiana long enough) you are entitled to have $350.00 in cash (whether it be under your mattress, in a bank account, in stocks, or buried in the back yard), $9,350.00 in personal property (furniture, equity in a vehicle, kitchen equipment, recreational equipment, jewelry, clothing, etc.), and $17,600.00 in equity in your personal residence on the date that you file bankruptcy, which cannot be touched by creditors.  If you are married filing a joint bankruptcy the the amounts just listed are doubled. If you have property above and beyond these exemptions it may still be possible for you to file for a Chapter 7 bankruptcy, but you will need to meet with an experienced bankruptcy attorney to see if you can qualify.

MYTH #5:  I WILL LOSE MY HOUSE AND/OR MY CAR AND THEN I WILL BE HOMELESS AND HAVE NO WAY TO DRIVE TO WORK

       FALSE.  Bankruptcy is a sort of "bail-out" for those in debt and debtors, not a punishment.  The bankruptcy code understands that you need to be able to get to and from work and you need somewhere to live.  If you have a home with a mortgage that is not significantly upside down, that you have the income to make the payments toward and you don't have much more equity in the home than the exemption listed above you will likely be able to keep it.  The same rules hold true with your vehicle.  This is not a discussion of whether you should surrender a home or a vehicle to rid yourself of high payments, we will leave that for another day.

MYTH #6:  NO ONE WILL EVER KNOW IF I TRANSFER FUNDS/PROPERTY TO A FRIEND/RELATIVE PRIOR TO FILING BANKRUPTCY

       FALSE.  Not only false, but pretty stupid.  Bankruptcy law is federal law.  If you file bankruptcy you are affirming under the penalties of perjury that you have reviewed your petition and it is true, accurate and complete.  There will be a bankruptcy trustee, who is an attorney with a very good understanding of bankruptcy law, assigned to review your case.  They ask questions and look at your financial records to determine whether you may have made any transfers of property in an attempt to avoid having the property go to your creditors.  These trustees were not born yesterday....this is not their first rodeo.  They understand how debtors sometimes try to buck the system and attempting to do this will get our bankruptcy discharged denied and could result in federal criminal charges.  I am not trying to scare anyone.  So long as you are honest you will not have these problems, but over my career at least once a week someone asks me, "well, how would anyone ever know if....."  An experienced bankruptcy attorney can often assist you with asset-planning for your bankruptcy so that even if you do have assets above the exemptions that you can spend some of these assets in a non-fraudulent way and still file for bankruptcy.  This is the right way.  Ok....I am going to get off of my soap box now and get on to #7.

MYTH #7:  I CAN'T AFFORD A BANKRUPTCY

        FALSE.....most of the time.  Bankruptcy fees vary from attorney to attorney.  However, they are typically a flat fee and they are typically affordable.  At HALCOMB SINGLER LLP we set up payment plans that fit the needs of our clients.  It is not uncommon for a client to pay over a number of months for their bankruptcy, and often the impending filing of your bankruptcy will free up funds that will allow you to pay your attorney fees.

MYTH #8:  ONLY BAD PEOPLE FILE BANKRUPTCY

      FALSE.  No one wants to file bankruptcy.  People would rather pay the debts that they have than go through the process of filing bankruptcy.  However, the bankruptcy code exists in our country to help people get out from under debt.  It is simply a law that some people need to use to get their finances and financial health back on course.  It does not make you a bad person.

MYTH #9:  YOU CAN LEAVE SOME DEBTS OFF OF YOUR BANKRUPTCY

       FALSE.  You do not get to pick and choose what debts to include or not include on your bankruptcy petition.  All creditors must be listed.  This includes doctors, family members, cars and houses.  This does not mean that after the bankruptcy is over that you can't pay back your family member and it does not mean that you are automatically going to lose your house or your car.  It just means that the court must have a clear understanding of everything that you owe when you file for bankruptcy.

MYTH #10:  I AM GOING TO FILE BANKRUPTCY, SO I SHOULD START PAYING BACK THOSE CREDITORS WHO I DON'T WANT TO INCLUDE IN MY BANKRUPTCY AND/OR START TRANSFERRING ASSETS

        FALSE:  If you think you may need to file a bankruptcy, call a qualified bankruptcy attorney.  Most bankruptcy attorneys will meet with you for an initial consultation for free.  The attorney can tell you what is a good idea to pay, if anything, and how to prepare for the filing of a bankruptcy.  Most attorneys have spent 4 years in college, 3 years in law school, have passed a bar examination lasting multiple days, and have experience practicing in the court where you will need to appear.  Although I have seen people file their own bankruptcy successfully, I believe attempting to do so is akin to cracking someone's neck if you have not been trained as a chiropractor....it's just not the best way to go.

        If you live in Hamilton, Marion, Boone, Tipton, Howard, or Madison County, Indiana and you would like to set up a free consultation to speak with me about bankruptcy call me at 317-575-8222 or click here to sign up for a free consultation and I can answer questions specific to your situation.

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.