Newspaper Has it Wrong: What to Really Expect in Bankruptcy

Newspaper Has it Wrong: What to Really Expect in Bankruptcy

As we discuss in the Road Out of Debt, bankruptcy myths are everywhere.  Still, I am surprised when I see myths reported in newspapers like the San Francisco Chronicle or on very reputable websites like Investopedia.

Here are some of the misstatements and myths I found in this rather short article.

The good news is that filing for bankruptcy is not the end of your financial life. The bad news is that you're in for a rough ride.

Generally, you will not be in for a rough ride in filing for bankruptcy. You have to attend a credit counseling session (about an hour on the phone, internet, or in person) before you file and you have a good deal of paperwork to do. But, once you actually file and your case proceeds like the overwhelming majority of debts, you will have to attend a "341 meeting" (meeting of creditors where you will be asked question) and a financial management class. You will likely have no other obligations in chapter 7 and will have to abide by the terms of the bankruptcy plan you file in a chapter 13.

Before you file for bankruptcy, you should exhaust all the options that have fewer consequences. Don't liquidate your retirement portfolio, but do consider drastic measures, because you may be forced to after the bankruptcy anyway.

I guess it may depend on the author's interpretation of "drastic," but I would say never take drastic measures to avoid filing a bankruptcy case. What I think of drastic measures- such as payday loans, car title loans, foreclosure rescue experts, debt negotiators, pawn shops, and hard money lenders- will only get you in much worse trouble in a short time and cause much bigger problems in the future.

You don't actually choose what chapter to file bankruptcy under. Most people will be placed under chapter 7 or chapter 13.

WRONG. You do choose which chapter of bankruptcy you can file. You may not meet the eligibility to file a chapter 7 if your income over the 6 months before filing is too high, but otherwise it is your choice. In fact, if you want to keep your house and can make up the amount you are behind, you should file a chapter 13 bankruptcy case even if you meet the income requirements to qualify for chapter 7.

Chapter 13 is basically a court-ordered repayment plan. The plan is designed so that the debtor pays back as much as possible because the plan is somewhat biased in favor of lenders.

The chapter 13 bankruptcy plan is created by you as a debtor. It does not have a bias in favor of lenders. You are required to dedicate what you can afford after taking your income and expenses into account. Normally, you end up paying a small percentage of what you owe to your creditors under the term of the plan.


Bankruptcy has benefits as well as costs but it is essential to know the truth about your bankruptcy case. Too many people are quick to propagate myths about bankruptcy, usually because they just don't know and don't take the time to learn the truth. If you are considering bankruptcy make sure you learn the truth and myths about bankruptcy before you actually file. You don't want to suffer needlessly because your information if wrong. Read the Road Out of Debt or another good resource to learn the truth.

Read more articles about consumer debt by Ted Connolly, co-author of The Road Out of Debt

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