DEBUNKING THE COMMON MYTHS ABOUT BANKRUPTCY

There are a lot of ugly nasty rumors floating around about bankruptcy. Sometimes they come from the well intentioned but ignorant and uninformed. Sometimes they come from others who don't want to to know the truth in order to prevent you from filinf and promote their own business as an alternative. So to set the record straight, here are some of the most popular myths and the real truth

Myth #1. If I file bankruptcy, I'll lose my house

The Truth: The bankruptcy law hasn't changed. You get to keep your house by claiming exemptions, and curing any default during the pendency of a Chapter 7. You can cure a delinquency over time in a Chapter 13, and in some circumstances, you can strip off an completely unsecured 2nd mortgage (when there is no equity to cover the 2nd). There is also a bill pending in Congress that will allow homeowners to "cram down" the amount of the balance on the mortgage loan to the value of your house. Stay tuned for further developments.

Myth #2: Under the new bankruptcy law, I'll have to pay back my credit cards and lose my house.

The truth: The new means test creates a presumption of abuse if you make enough money over the median for the district in which you file, but the amount paid in to the plan is based on your disposable income after you pay your ordinary and necessary living expenses which includes your house payment. In a Chapter 13, you can pay back a percentage or fraction of your unsecured debts and stilll keep your house. The new bankruptcy law hasn't changed that.

MYTH #3: I'll have to give up my cars.

The Truth: You get to keep your cars by claiming them as exempt. Under California law your entitled to keep a certain amount of equity in a motor vehicle, and if you're financing a vehicle, you sign a reaffirmation agreement and keep making the payments. Of course, you have to be able to afford it, but that's true whether you file or not.

MYTH #4: I don't have to include all my debts if I want to keep one of my credit cards.

The Truth: This is not only wrong, but downright dangerous thinking. Your bankruptcy schedules are signed under penalty of perjury, and one of the cardinal rules is that you have to disclose all your assets, and all your debts, no matter what they are. The failure to list an asset may result in both denial of your bankruptcy and criminal prosecution for bankruptcy fraud, which carries with it a $500,000.00 fine and five years in Club Fed. Most people who get in trouble get there because they've heard from a "friend" that they can't touch that, or that you can just go ahead and pay them after bankruptcy. The unintentional failure to disclose debts or assets can result in lost property for failure to claim exemptions. This can result from amateur or faulty legal advice from an inexperienced lawyer or paralegal. Don't risk it; it isn't worth it.

MYTH #5: I make too much Money to file under the New Bankruptcy Laws.

The Truth: This is what the credit card companies want you to believe. It's simply not true. Under the means test, the vast majority of filers are unaffected, because after calculating your gross income, you are entitled to various deductions for secured debt payments, taxes, medical expenses, and other things. You need an experienced lawyer who is familiar with the United States Trustee's standards for implementing the means test. Most people who end up filing Chapter 13 would have done so before the passage of the New Law. The bottom line is that if you are over your head in debt and are only eligible for Chapter 13, you don't have a choice, because your going to get further and further in debt if you don't do something, and your problems will go on forever instead of the relatively limited amount of time you spend in a Chapter 13. At the same time, Chapter 13 will be a less expensive path to follow, because you pay only what you can afford, without interest on unsecured debts.

MYTH #6: I can do it myself or have a paralegal do it so I can save money.

The truth: You can also do brain surgery on yourself, fix your own car, or try and sell your own house. The likelihood of getting a good result without the help of a skilled professional with the knowledge, skills, and tools, is not very good. Trying to save a few bucks when you are talking about your financial future is not a good idea. The reality is that lawyers make a lot of money by cleaning up messes created amateurs or do it yourselfer's, but the problem may be that you get to a lawyer too late to save your assets and correct a problem that should have been avoided. Do you want cheap advice or good advice? Do it right the first time. It will save you time and money, not to mention a lot of stress in the long run..