The US Bankruptcy Code is a collection of complicated laws, regulations, and rules, all of which create a legal process that is complex and personal to each individual who files. As a result, there are countless bankruptcy myths that spread like wildfire. Unfortunately, these misconceptions can affect a person’s judgment, leading to a situation where you are making important decisions based on falsehoods. Some people may even refuse to file because they have only heard the downside of bankruptcy.

The truth is that there are numerous benefits to filing bankruptcy, which you cannot appreciate when all you know is the myths. Some people will qualify for Chapter 7 bankruptcy, while others may opt for Chapter 13. Both types of bankruptcy enable you to discharge debt, but determining the right fit for your circumstances requires clearing up the misinformation.

When you retain legal counsel to assist with your case, you have confidence knowing that false information will not impact your decisions or the process. You will have guidance when opting for Chapter 7 or Chapter 13, and you can rest assured that your case is in good hands. Still, because it is important to know the facts, you should review the Top 10 bankruptcy myths busted by Athens, GA, bankruptcy lawyers.

 

Myth #1: Creditors Can Continue Collection Efforts During Bankruptcy.

This is false since the bankruptcy court will impose an automatic stay on creditor actions. As soon as you file your petition for Chapter 7 or Chapter 13, creditors are banned from making any efforts to collect. They cannot call or contact you, threaten litigation, sue you in a collection action, or garnish your wages.

The automatic stay on creditor efforts remains in effect for the entire duration of a bankruptcy case, so you will not feel the stress and pressure of possible legal action regarding your debt. Though the proceedings are different, both Chapter 7 and Chapter 13 result in the discharge of all eligible debt. Therefore, creditors will not have reason to take action against you after the proceedings conclude. Still, creditors will continue to pursue you if they hold secured debt or debts that are not dischargeable.

 

Myth #2: It Is Easy to Qualify for Chapter 7 – Debunking Common Bankruptcy Myths Misconception.

The rules for Chapter 7 are actually quite strict, so many filers may not be eligible for this process. Chapter 7 discharges debt, which is a positive outcome for the debtor but a financial hit to the creditor. As such, bankruptcy rules are designed to ensure only those who truly need relief will qualify. There are two tests for eligibility under Chapter 7 rules:

1. Your earnings are lower than the state median income level for the State of Georgia.
2. You earn more than the state median income level, but you qualify under the Means Test. This test takes your income and adjusts it to the amount you pay for important monthly bills. The reduction could enable you to file for Chapter 7.

 

Myth #3: The Chapter 7 Bankruptcy Trustee Will Sell All Your Assets.

Chapter 7 bankruptcy eliminates debt, but only after the trustee works out the liquidation process. The bankruptcy trustee can sell your assets to satisfy the debt to creditors, though you do have rights to certain items. You can apply exemptions to keep equity in your home and vehicles, as well as other personal belongings. The bankruptcy trustee cannot sell all of your assets, as the rules were never intended to leave the filer destitute.

In practice, your assets may not risk being sold by the bankruptcy trustee, regardless. Many personal items would not capture a profit to pass on to creditors, or the effort to sell them would be unproductive. The trustee often opts to allow you to keep assets in many cases.

 

Myth #4: You Can Discharge Your Mortgage Through Chapter 7 – Debunking Bankruptcy Myths

This is one of the most important bankruptcy myths to dispel because many people do not realize the difference between secured and unsecured debt. You are only able to discharge unsecured debt through Chapter 7 bankruptcy. Those creditors holding secured debt have an interest in some property you own, which acts as collateral for the debt.

Your mortgage is a secured debt that uses your home as collateral. The bank can exercise its security interest by selling the home and satisfying the mortgage through foreclosure. The lender would then pass on the amount of equity and any remaining amount to you. Note that a lender can request the bankruptcy court to lift the automatic stay on creditor activities. This exception would allow the bank to proceed with a foreclosure action even while your case is pending.

 

Myth #5: There Are No Eligibility Rules for Chapter 13 Bankruptcy.

Many people view Chapter 13 as the only option available when you do not qualify for Chapter 7 bankruptcy. However, there is one critical requirement you must meet to be eligible for Chapter 13: You must have a job or some other source of income, which is a core factor for the process with this type of bankruptcy. Chapter 13 establishes a debt repayment plan for you to pay back some of what you owe to creditors. The monthly payment is one you can afford based on your income, which is the reason for the employment requirement.

You should keep in mind that many filers opt for Chapter 13 by choice instead of failing to qualify for Chapter 7. With Chapter 13, there is no liquidation of assets, so your personal items are not at risk of being sold.

 

Myth #6: You Have to Pay Back Creditors in Chapter 13 Bankruptcy – Navigating Bankruptcy Myths.

The debt repayment plan under Chapter 13 is an arrangement for paying the debt you owe to creditors, but you will not end up paying the full balance due. Your plan will be structured around your earnings, so your projected income will be sufficient to pay on a monthly basis. Under Chapter 13, your debt repayment plan will last for 3 to 5 years, depending on your circumstances.

When the debt repayment period is over, your bankruptcy case concludes. All remaining unsecured debt is discharged, meaning that creditors will not receive the total amount you owe before filing for Chapter 13.

 

Myth #7: You Cannot Include Your Mortgage in a Chapter 13 Debt Repayment Plan.

This is a tricky myth because you need to take a closer look at how mortgages work in Chapter 13. It is true that you cannot discharge your mortgage in bankruptcy, because the lender can always pursue its secured debt through foreclosure against your home. However, you CAN include arrearages in your debt repayment plan.

The benefit of working your mortgage arrearages into your Chapter 13 plan is that you can keep your home in most cases. Through the plan, you are paying off some of the late fees, interest, legal costs, and other fees that the bank adds to your mortgage payment when you are in default. At the same time, you must continue to pay your regular mortgage amount during the 3 to 5 years that your debt repayment plan is in effect. When the Chapter 13 process ends, you have discharged the remaining arrearages and are in good standing on your mortgage.

 

Myth #8: Life After Bankruptcy Is Challenging and Restrictive.

Some people only see a downside of bankruptcy, which is the negative impact on the person’s credit report. They assume getting credit is impossible and life will be miserable without having full financial freedom. This myth could become true if you allow it, but a better view is to take advantage of the opportunities provided by the fresh start you have been granted. Removal from your credit report may take ten years for a Chapter 7 case and seven years for Chapter 13, but you can rebuild credit.

 

Myth #9: You Can Discharge All Types of Debt in a Bankruptcy Case.

It is impossible to eliminate certain types of debt through Chapter 7 and Chapter 13 bankruptcy, even if it is unsecured and would otherwise qualify for discharge. For instance, you are prohibited from wiping out debt related to:

• Alimony;
• Child support;
• A personal injury judgment resulting from a drunk driving accident caused by you; and,
• Many types of taxes.

Still, despite the fact that these debts will remain, there are benefits to you through bankruptcy. When you eliminate other debt, you will have more cash flow available to pay the debts that you could not eliminate.

 

Myth #10: You Can Effectively Represent Yourself When Filing for Bankruptcy.

One of the biggest mistakes is believing the misconception that you can handle the bankruptcy process yourself. Without a legal background, you may not realize whether Chapter 7 or Chapter 13 best suits your situation and goals. By retaining a Georgia bankruptcy lawyer, you also have assistance with:

• Assembling and organizing financial documents;
• Completing forms for your bankruptcy petition;
• Representing you at the meeting of creditors for both Chapter 7 and Chapter 13; and,
• Wrapping up all details at the end of your case, including obtaining the final discharge order.

 

Trust an Athens, GA, Bankruptcy Attorney for Expertise in Handling Bankruptcy Myths

If you are considering filing for bankruptcy, do not allow the Top 10 myths or other falsehoods to stand in the way of making wise decisions about your future. Our team at Morgan & Morgan, Attorneys at Law, P.C., will advise you on options and explain how the process works, so you will not put your finances at risk due to misinformation. To learn more about our services, please get in touch with us to set up a consultation with a skilled Georgia bankruptcy lawyer.

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