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
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
You don't actually choose what chapter to
file bankruptcy under. Most people will be placed under chapter 7 or chapter
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
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.
articles about consumer debt by Ted Connolly, co-author of The Road Out of Debt
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