5 Bankruptcy Myths
The misconceptions that keep you from filing, or not filing
Here's a question for you: were you left more confused or less confused by the U.S. government's introduction of new bankruptcy laws in 2005?
To be fair, the new rules weren't brought in to un-muddy the muddy waters of bankruptcy; they were more concerned with making it tougher for you and me to pull the plug on our creditors and start anew. So if you find yourself intimidated by the whole process, you're not alone.
Despite the shakeup in the U.S. bankruptcy regime, some myths remain. Here are a few of our favorites:
Declaring bankruptcy necessarily means I'm a loser.
Not at all. About two million Americans declared bankruptcy in 2005, and only a small portion of them would fall into the category of "stone-cold deadbeat." The rest were good, hard-working people who had perfectly understandable reasons for filing for bankruptcy.
Why bother filing? It won't stop my creditors from harassing me and my family.
This is a HUGE myth and it's absolutely and flat-out wrong. The nanosecond you declare bankruptcy, the Bankruptcy Court issues something called an 'Automatic Stay' (Title 11 of U.S. Code, Section 362) which orders all of your creditors to bugger off. It's true.
Declaring bankruptcy will actually improve my credit rating.
You'd think this would be true, since so many of your debts disappear after you file - but no. Any way you slice it, filing for bankruptcy is a pretty big blow to your credit. The flip side is that "I'll never get any credit again" is also a myth: there are numerous ways to bounce back fast.
Everyone will know I'm bankrupt.
While bankruptcy proceedings are within the public domain, unless you're MC Hammer or Willie Nelson there's no realistic reason for your insolvency to get broadcasted to the world. The only people who will know are your creditors and the friends who take you out for a sympathy beer.
Filing for bankruptcy will make me more attractive to members of the opposite sex.
Um, no. We took an impromptu survey, and 99 percent of the young women we asked said that they found a good credit score to be an incredible turn-on.
One additional misconception you might have is that it's actually difficult to complete the bankruptcy filing itself, which isn't true. You don't even need a lawyer to do it. But of course, we recommend you get yourself a bankruptcy attorney if you can - he or she will make the process go more smoothly and ensure that you get the best deal possible.