Bankruptcy Myths

At The Law Offices of Joseph M. Tosti, we have heard many bankruptcy myths over the years. These myths include the following:

Myth 1: "I will lose all my property if I file bankruptcy."

Fact: Nothing could be further from the truth. Over 95% of those who file a Chapter 7 bankruptcy do not lose any property. During your free consultation, our attorneys will explain to you how your assets will be protected.

Myth 2: "Only a deadbeat would file bankruptcy."

Fact: The vast majority of bankruptcies are filed when the debtor incurs substantial medical bills, loses a job, or goes through divorce. Most debtors would go to any length to avoid bankruptcy, but often times they are unable to because of the high interest rates on their credit cards.

Myth 3: "If you are married, both spouses must file bankruptcy."

Fact: A spouse may file separately and the filing of the bankruptcy will not effect the credit of the non-filing spouse. Oftentimes all the debt is the name of only one spouse. This is especially true after marriage where one spouse realizes the other spouse is bringing a huge amount of debt to the marriage.

Myth 4: "You may run up your credit cards prior to the filing of the bankruptcy."

Fact: Any debts incurred during the anticipation of the bankruptcy may be determined non-dischargeable. Those debts would have to be repaid.

Myth 5: "If I file bankruptcy, I will never get credit again."

Fact: Usually when a person starts to contemplate bankruptcy, that person knows that he or she is unable to continue making payments on their credit cards and other bills. If the person's credit isn't already ruined, it will be ruined very shortly. The Chapter 7 bankruptcy will actually improve the person's credit as the credit bureau reports will reduce all outstanding unsecured debt to $0.00. Typically, the debtors will be able to re-establish their credit within 2-3 years if they have a steady job.

Bankruptcy Frequently Asked Questions (FAQs)

In addition to the myths above, we receive a number of the same bankruptcy questions. While we can address many of your questions during your free initial consultation, here are some answers to the common questions that may be worrying you.

1. Can I wipe out all my bills & debts in a Chapter 7 bankruptcy?

Typically, yes! All of your credit cards debt, medical bills, and income taxes over 3 years old may be discharged in a Chapter 7 Bankruptcy. A Chapter 7 will give the honest debtor a "fresh start." Debts that are not dischargeable include student loans, income taxes less than 3 years old, child & spousal support and criminal penalties and fines.

2. Will I lose any property in Chapter 7, like my retirement or pension plan?

Generally no, as California law gives you "exemption" protection over most types of property unless you have large amounts of equity. Pension plans are completely exempt under the law. Other retirement accounts can generally be protected in their entirety. It is important to seek competent legal advice to make sure that you do not place your property at risk.

3. How do I stop the bill collectors from calling?

Upon the filing of the Chapter 7 bankruptcy, there is an "automatic stay" which prohibits any further collection efforts. If a creditor violates the automatic stay, said creditor may be sanctioned by the Bankruptcy Court. The Automatic Stay will promptly stop any telephone calls from creditors. In addition, it will stop any foreclosure or repossession.

4. Does my spouse also have to file bankruptcy?

No. Oftentimes, all the debts are in the name of one spouse. By filing only on behalf of the spouse that is named on the debts, the non-filing spouses credit will not be affected.

5. Can I be fired from my job for filing bankruptcy?

No. The U. S. Bankruptcy Law specifically prohibits discrimination based upon a debtor filing for protection under the bankruptcy laws.

6. Will I be able to keep my home in a Chapter 7 bankruptcy?

Your home is protected under California law if you're single and have less than $50,000 of equity, if you're married and have less than $75,000 equity, and if you're over 65 or disabled and have less than $150,000 of equity. It is important for you to contact our firm so that you can be advised as to whether your home would be protected. If you have too much equity in your home, a Chapter 13 will allow you to force your creditors to accept a payment program.

7. Will I be able to keep my car after I file for bankruptcy?

In the great majority of cases, there will be exemptions that will protect your vehicle or vehicles.

8. If I am financing my car, do I have to continue making the monthly payments?

If you want to keep your vehicle, it will be necessary for you to continue making the monthly payments. In a Chapter 7, you have the right to return the vehicle to the finance company if you do not want to keep your car.

9. Will my credit be ruined for 10 years after the bankruptcy?

The bankruptcy will be the first step in re-establishing your credit. Typically, the debtor's credit is ruined, or about to be ruined, at the time the debtor seeks legal advise. Chapter 7 bankruptcy will discharge all outstanding debt and the credit reports will reflect that the outstanding debt is reduced to $0.00. The average debtor is typically able to re-establish good credit within 18 to 30 months

We are a debt relief agency pursuant to Federal Law S524 of Title 11 of the US Code. The Law Offices of Joseph M. Tosti provides assistance and helps people file for bankruptcy relief under the United States Bankruptcy Code.