Bankruptcy Myths

Myth 1:  Only deadbeats file for bankruptcy.                         [Print in PDF]

Not true. Most of the people who file bankruptcy in Michigan are good, honest, hard-working people, who file bankruptcy as a last resort.  Usually, it was some life altering event such as a divorce, job loss, a failed business, or illness that has caused the financial difficulties and they have struggled for months or years to pay the bills and recover financially with no success or hope of paying the debts off. (Contact an attorney)

Myth 2:  You will lose everything.

This is generally not true.  Most people who file for bankruptcy in Michigan keep everything they own.   The bankruptcy code allows for generous allowances of assets that you get to keep. These are called bankruptcy exemptions.  While most debtors get to keep all of their assets in a chapter 7 bankruptcy and chapter 13 bankruptcy, they must surrender property that is worth more than the allowable exemption in a chapter 7 bankruptcy case.  However, many times, if circumstances permit, and they usually do, the debtor can negotiate with the chapter 7 trustee to keep non-exempt assets in a chapter 7 bankruptcy case.

It's important to know that filing bankruptcy does not generally wipe out liens. Therefore...if you want to keep a car, truck, home or business equipment that serves as collateral for a loan....you need to keep paying on the debt. If you make these payments and have exemptions to cover any value above what is owed....you can rest assured you will be able to keep these items.
(Contact an attorney)

Myth 3:  You can pick and choose which property and debts you list in your bankruptcy petition.

Unfortunately you can't. While most people want to keep out certain debts because they want to continue paying it, they can't do that.  Under the bankruptcy law, you are required to list ALL your property and ALL your debts.   The good news is that you can pay these debts if you want to, even though you have to list the debt. You have the option to continue paying on certain debts even after you file. For example, if you list your dentist as a creditor, that debt will be discharged.  The dentist cannot take any action to collect the debt.  However, if you want to pay your dentist back you can. (Contact an attorney)


Myth 4:  Everyone will know you have filed for bankruptcy.  

While bankruptcy is a matter of public record, most people will never know you filed for bankruptcy, unless you're a prominent person or a major corporation and the filing is picked up by the media.  In fact, the chances are very good that the only people who will know about a filing are your creditors and the people who you tell. So, if you don't want everyone you know to know you filed bankruptcy, don’t tell anyone.  (Contact an attorney)

Myth 5:
You will never get credit again.


Even in today's economic climate, most debtors report that they are able to obtain credit after filing bankruptcy.  Remember, after your discharge, you have eliminated most if not all of your debt and this will positively effect your income to debt ratios, making you more attractive to some would be lenders.   At first, the would-be lenders may require more money down and may charge you higher interest rates. However, if you make timely payments and do things that will put good marks on your credit report, your credit score will improve and over time you will have the opportunity to reestablish your credit.   In my experience, if a client has not re-established sufficient good credit within 2 to 4 years to buy a car or even a house, it's not because they filed bankruptcy. It generally means that something else has happened after the bankruptcy to hurt their credit. (Contact an attorney)

Myth 6:
Married couples both have to file for bankruptcy.


Not true. While it is often in a couples best interest for both spouses to file bankruptcy, particularly when the debt is jointly held by both, but it's not uncommon for only one spouse to file bankruptcy. This usually happens when the debt is only in one spouse's name because it was incurred prior to marriage, primarily business debt of one spouse or for numerous other reasons.  This allows the non-filing spouse to remain un-affected by the filing spouse's bankruptcy.  (Contact an attorney)

Myth 7
:   It's really hard to file for bankruptcy.

The decision to file bankruptcy is hard, but with an experienced bankruptcy attorney, such as those at Sterling Bankruptcy, the process can be relatively easy for you.  At Sterling Bankruptcy Center we strive to make the process as easy as possible for you.  We make every effort to ensure that  you have all the information you need and that there are no surprises.   Bankruptcy is a joint effort with you and your bankruptcy attorney.  You must make sure you provide the attorney with all the information requested on a timely basis.  (Contact an attorney)

Myth 8: Filing bankruptcy means you're a bad person.

Not true. There's a reason Americans are filing for bankruptcy protection every 30 seconds.  It is NOT because they are bad people.  Lots of good, honest, hard-working people fall on hard times. Let's face it, the economy is at its all time lows, an average of 600,000 people are losing their jobs each month, and money is just not there. The bankruptcy laws were created to make sure you have a way to get free from the burden of debt so that you and your family can have a second chance at a "fresh start".  (Contact an attorney)

Myth 9:
Filing for bankruptcy will hurt your credit.


That's not true. Think about it, by the time you come to a bankruptcy attorney, your credit is probably already bad, or you've maxed out your credit cards and your FICA score is low.  And if your credit is already messed up or maxed out, how can bankruptcy hurt it? Or, your credit may not be bad yet, but you are probably at a point where you know you can't keep going on like this.  Something has to give, either your credit cards or your mortgage payment will be late.  So it's only a matter of time before your credit is affected. You may realize that even if your credit isn't bad now, it will be soon because you can't keep paying everything much longer.  

You may be surprised to hear that bankruptcy can actually help re-build your credit. Bankruptcy gets rid of debt, and by getting rid of debt you may be in a better position to handle new credit.  Bankruptcy is often the first step in the process of re-building your credit. (Contact an attorney)

Myth 10: Bankruptcy doesn't stop creditors from harassing you or your family.

Nothing could be further from the truth. Once your bankruptcy case is filed, the court enters an order that requires your creditors to stop calling you and making any attempts to collect on a debt.  This is called the automatic stay.  The automatic stay is very powerful, and puts the full weight of the United States Bankruptcy Courts to work for you, to make sure your creditors leave you alone. If a creditor violates the automatic stay, you have the right to bring the creditor before the Court for Contempt of Court, and to be compensated accordingly. (Contact an attorney)

Myth 11: You can't discharge back taxes in bankruptcy.

We get rid of old "income" taxes for our clients all the time.  The bankruptcy law allows you to discharge certain income taxes that are more than 3 years old, however, you must meet certain qualifications to discharge these debts.  Please note: Filing bankruptcy does NOT get rid of withholding or sales taxes, no matter how old they are.
(Contact an attorney)

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