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Myths About Bankruptcy

If you’re drowning under financial obligations, we may be able to help you. At The Law Offices of Sidney Wike, LLC, we will explain your rights, outline your options, and work closely with you throughout the bankruptcy or restructuring process. We know that you’re under a great deal of stress right now, but we’ll work hard to make this time easier on you.

We have 18 years of experience in the field, and we don't charge for the initial consultation. We’ll handle all aspects of your bankruptcy from the initial petition and negotiations with creditors to filing the final paperwork. Our goal is to help you regain control of your finances and enjoy a fresh start.

Our top concern is for your satisfaction and protecting your rights. Separate fact from fiction by exploring some of the common Myths About Bankruptcy below.

Bankruptcy Myths

  • MYTH 1: BANKRUPTCY RELIEF IS NO LONGER AVAILABLE.

    On the contrary… bankruptcy is still very much available and affordable to the average debtor. In fact, you can accomplish just about anything under the new law that you could under the old law. In some ways, the new law actually makes it easier to file for bankruptcy – we’ll tell you how.

    Many people that would have qualified for bankruptcy under the old law think – incorrectly - they would not qualify for bankruptcy today. Studies have proven, however, that that overwhelming majority of people who actually filed under the old system would meet today’s eligibility requirements as well.

    The main differences are that the new law:

    Imposes additional paperwork requirements
    Puts additional measures in place to prevent dishonest debtors from “abusing the bankruptcy system”; and,
    Provides incentives for people to file under Chapter 13 - rather that Chapter 7, if they have a meaningful amount of income left over each month after their reasonable and necessary living expenses.
  • MYTH 2: ITS REALLY HARD TO FILE BANKRUPTCY.

    Actually, filing Bankruptcy is a lot like the going to the dentist: in most cases, the worst part is worrying about it before it starts.

    While the decision to file bankruptcy may be difficult, the actual filing of the bankruptcy is not difficult … at least not in the hands of an experienced bankruptcy attorney. In the hands of an experienced bankruptcy attorney, the actual filing is relatively simple.

    The main difficulty is usually getting all of the paperwork together. If you think that bankruptcy may be right for you, organize your affairs by gathering-up all paycheck stubs for the past six months and your most recent credit card statements, tax returns, medical bills etc.

    If I think that bankruptcy is not right for you, I’ll tell you … and I’ll tell you why. In a typical week, I’ll advise several persons not to file bankruptcy because – for them – the risks outweigh the benefits. At that point, we discuss alternative strategies for managing debt. Any reputable attorney would so the same.

    You shouldn’t keep living with a painful toothache just because you are afraid to go to the dentist. Nor should you continue to struggle pathetically with debt (if that’s what your doing) because your afraid to review your options with an experienced bankruptcy attorney. To schedule a free, relaxing debt consultation, call us today.
  • MYTH 3: IF I FILE BANKRUPTCY, I'LL LOOSE MY HOUSE, CAR, AND EVERYTHING I OWN.

    The Chapter 13 trustee has no authority to take property from you and sell it. You may, however, be thinking about Chapter 7.

    Only about one person in twenty looses an asset to the Chapter 7 trustee. The reason the overwhelming majority of Chapter 7 debtors are able to keep all their property is because certain state and federal laws (called “exemptions”) place certain property “off-limits” to a Chapter 7 trustee. In other words, exemption laws protect most of your assets from the reach of the trustee.

    Your attorney will know how to assert your exemption rights to protect your equity in many assets. For example, in South Carolina, the homestead exemption was recently increased to protect a $50,000 of equity in your home. If you and your spouse own the home together, you get $100,000 of protection. You heard that right, if you and your spouse own the home together, the trustee can’t touch your home except to the extent that you have more than $100,000 of equity. Please note that the result can be different if you recently moved to South Carolina, or if you don’t properly claim the exemption, or if you live outside South Carolina.

    Similar exemptions protect equity in your car, your retirement accounts, household items, tools of the trade and other asset types. Part of an attorney’s job is to advise you about which assets (if any) may be at risk and, if appropriate, take steps to protect those assets before you file.

    What asset is most commonly forfeited to a Chapter 7 trustee? Probably, tax refunds owed to the debtor before the case was filed. The trustees are generally not interested in ordinary household items such as furniture, lawn mowers or guns – unless of course these items are of serious value to collectors. Generally speaking, the belongings of most debtors are either of insufficient value to interest the trustee or they are protected by exemption laws.

    Will the trustee poke around your house looking for assets to sell? No … that almost never happens.

    If you have assets that for some reason are not sufficiently protected by exemption laws you may want to consider filing under Chapter 13. In Chapter 13, you’ll repay a portion of the debts through a court supervised repayment plan. No one looses assets in Chapter 13, so long as they can make the necessary payments to the lien holder. And, even if you are behind on your car payment or house payment you will generally be allowed to keep the property if you can pay for it.

    Exemption rules are tricky. We perform an exemption analysis (and lien search) during the first appointment to identify if any property is at risk.
  • MYTH 4: YOUR CREDIT WILL BE RUINED, AND YOU'LL NEVER OWN ANYTHING AGAIN.

    Chances are that if you are reading this your credit score is already shot or is about to be shot – and it's just a matter of time.

    Most of our clients report receiving credit cards applications in the mail – often before their case is over! The interest rate on these cards will be high - at least at first – so don’t use them. I definitely don’t want you to fall back in debt.
  • MYTH 5: YOU'LL NEVER BE ABLE TO BUY A HOME IF YOU FILE BANKRUPTCY.

    You should be able to obtain a new mortgage or refinance an existing mortgage at competitive rates through a special program underwritten by the Fair Housing Authority ( FHA) one year after you file Chapter 13 and two years after you file Chapter 7. This program, created by the Federal government, is based not on your credit score but on factors such as your income and payment history after your bankruptcy.
  • MYTH 6: FILING BANKRUPTCY MEANS YOU ARE SOMEHOW "IMMORAL".

    Most people file bankruptcy due to circumstances beyond their control. Often, the debtor or someone in the debtor’s household loses a job. Other debtors file because they loose a spouse’s income through death or divorce. Others file because of sky high interest rates on credit cards or mortgage loans. Overwhelming medical expenses, business failure, bad luck or simply poor money management skills often drive people to seek the protection of the bankruptcy courts.

    Most people file only as a last resort, and have already borrowed from friends and mortgaged their property, but still can’t pay all their debts on time. Congress has provided bankruptcy as a safety valve to protect honest people who find themselves in circumstances beyond their control.
  • MYTH 7: FILING BANKRUPTCY IS SOMEHOW "IRRESPONSIBLE".

    Filing bankruptcy is an act of responsibility. It is taking responsibility for the debt, and more importantly, for improving the situation for you and your family. It starts by acknowledging how serious your debt situation is (or will soon become) and making up your mind to take a decisive step to end the cycle of debt and obtain a fresh start.

    Want to know what is irresponsible? To ignore the situation or to continue to struggle hopelessly to pay the minimum amount on credit card - that's irresponsible. That's not going to solve your debt problems. Filing bankruptcy – if it’s right for you – can be a crucial first step toward creating a sound financial future for the rest of your life.
  • MYTH 8: FILING BANKRUPTCY IS SOMEHOW “CHEATING THE SYSTEM”

    Remember when you applied for those credit cards? When you applied for credit card, the bank assigned you to a certain “Risk Pool” based on your credit profile. Tens of thousands of individuals were also assigned to your same risk pool.

    The credit card issuer, of course, had no way of knowing who in the group would file for bankruptcy. But they did know that a certain percent of the people within each pool would default on the loan and file bankruptcy. In fact, they were able to predict quite accurately (using sophisticated computer modeling and statistical analysis), the default rate for the group as a whole. Armed with this knowledge, they charge the group as a whole a “risk premium” in the form of higher interest rates.

    Each time they collect a payment from a cardmember, they simply set-aside the risk premium portion into special reserve account used to cover bankruptcy losses. Therefore, when someone files for bankruptcy, large commercial lenders don’t agonize about it, they simply transfer funds from the reserve account to cover the loss.

    Almost everyone agonizes over not being able to pay their debts. But if you have ever paid money to a credit card companies, a finance company or a bank, you have helped fund reserve accounts to cover the losses.

    To your creditors – at least to banks and other sophisticated institutional lenders, bankruptcy is not a moral decision. It is a business risk they studied, planned for and eagerly accepted. Given the rates the credit card companies charge and the shameless tactics they use to lure customers, they are in no position to raise moral objections.
  • MYTH 9: YOU HAVE TO GO BEFORE THE JUDGE AND BE GRILLED BY YOUR CREDITORS.

    Most people who file for bankruptcy in South Carolina never go before a judge. You will, however, attend a non-judicial, non-confrontational meeting conducted by a trustee. The purpose of the meeting is to answer questions about your assets and recent financial transactions like the sale of a house or the purchase of a car.

    The trustee will also want to know about any unusual payments to creditors or transfers of property – especially to family members. The meeting usually lasts five to six minutes. Although creditors are invited to participate in the meeting, they seldom waste their time on it because in most cases, there stuck with the fact that you filed bankruptcy and there’s absolutely nothing they can do about it. I will make sure you are fully prepared for this meeting. I have practiced bankruptcy law in South Carolina and the surrounding counties for eleven years, and have appeared before all the trustees. I know the types of questions each trustee is likely to ask.
  • MYTH 10: YOU CAN ONLY FILE BANKRUPTCY ONCE.

    Many people think that if the filed in the past, they cannot file again. Even if you received a discharge in a prior bankruptcy, you may be able to file again right now. There are waiting periods between filings, but many people are surprised to learn how soon they can file a second bankruptcy if needed.
  • MYTH 11: YOU CAN’T WIPE OUT TAXES THROUGH BANKRUPTCY.

    Actually, we’ve wiped out hundreds of thousands of dollars of “old” tax debt for our clients. By "old" tax debt, I mean tax debts that are generally at least three years old. Often we advise waiting a few months or even years so the taxes will be wiped out. Several qualifications must be met, but once these qualifications are met, the taxes are gone - for good. We are talking here primarily about income tax (including penalties and interest). Withholding tax and sales taxes are never dischargeable in bankruptcy.
  • MYTH 12: I'LL BE HUMILIATED. . . EVERYONE WILL KNOW I HAVE FILED.

    Unless you are a famous public figure, the chances are excellent that only the trustee, your creditors and you will know you filed. While bankruptcy is a matter of public record, it is not readily accessible using standard internet searches. The number of persons filing bankruptcy every day is so large and the topic is so boring that the news media has little interest in publishing it. Keep the information to yourself if you don’t want others to know.
  • MYTH 13: MY PAYDAY LENDERS WILL HAVE ME ARRESTED FOR WRITING A BAD CHECK.

    Not in South Carolina. If you file for bankruptcy in South Carolina, payday lenders cannot have you arrested simply because you post-dated a check that was returned for insufficient funds.
  • MYTH 14: I’M NOT BROKE ENOUGH TO FILE BANKRUPTCY.

    There is no minimum amount of debt that you must have to file for bankruptcy. An increasing number of our clients have excellent incomes, high credit scores and are current on all their payments. People with expensive home and expensive cars are still able to qualify if they have more debt than they can handle.
  • MYTH 15: IT’S AGAINST THE BIBLE TO FILE BANKRUPTCY.

    Actually, the modern bankruptcy code is derived directly from the bible. Look at the forgiveness of debts every seven years (the “Sabbatical Year” or “Jubilee Year”) in Deuteronomy, Nehemiah, Leviticus and in many other sections of the Old and New Testament. For example, in Deuteronomy 15:1-2, the Lord commands: "At the end of every seventh year you are to cancel the debts of those who owe you money”. Similarly, in Nehemiah 10:31 the Lord requires Israelites to “cancel all debts every seventh year”. Even the Lord’s Prayer teaches the disciples to ask God to “forgive us our debts, as we also have forgiven our debtors.”

    Some legal scholars have suggested that Congress chose the name “Chapter 7” because the bible commands the forgiveness of debts every seven years. I don’t know if that one’s true or not – sounds like it could be a coincidence.
  • MYTH 16: FINANCE COMPANIES WILL TAKE MY HOUSEHOLD ITEMS IF I FILE BANKRUPTCY.

    If you borrowed money from a small finance company and listed household assets as collateral, they have rights under state law to take all or some of the assets listed as collateral. If we represent you in Bankruptcy, we’ll file a motion asking the bankruptcy court to wipe-out the liens on such items so that you will once again own the item free and clear – as you did before you obtained the loan.
  • MYTH 17: DEBT CONSOLIDATION IS ALWAYS WORTH A TRY.

    Debt consolidation firms are typically extensions of the credit card industry. That’s right, they are in fact the credit card industry’s last effort to squeeze money out of you. These firms, which are set-up as “non-profit” corporations, receive kickbacks in the form of “contributions” from the credit card companies. If the debt consolidators really cared about helping you out of a bind, they would negotiate with medical providers, finance companies, credit unions, mortgage companies, local banks etc. - but they wont!

    All too often, a person who is eligible for bankruptcy will agree to make unrealistically high payments to the Debt Consolidation Firm only to find out that one or more of their credit card companies declined to participate in the program. The balance on the cards from the companies who opt –out of the program continues to increase.

    The time and money you spend paying the debt consolidation firms often serves only to delay your bankruptcy filing.
  • MYTH 18: IF YOU FILE BANKRUPTCY YOU CAN’T REPAY FRIENDS AND FAMILY.

    Nothing in the bankruptcy code prevents you from repaying debts that you want to repay, it’s just that you will no longer be legally obligated to repay debts that are discharged through bankruptcy. You can reaffirm any debt and pay it after the bankruptcy.
  • MYTH 19: MY SPOUSE’S CREDIT RATING WILL SUFFER.

    Your co-signer’s credit score will not be affected so long as the debt is paid on time. A notation may appear, however, on your spouse’s credit report to indicate that a co-signer (you) filed for bankruptcy, but their credit score will not be lowered unless neither of you repays the debt and the delinquency is reported to the credit reporting agencies.
  • MYTH 20: YOU CAN PICK AND CHOOSE WHICH ASSETS AND DEBTS TO INCLUDE.

    I am sorry, but all assets and all debts must be listed in your bankruptcy, even assets that were gifts and debts that you want to repay. To hide an asset or intentionally fail to disclose a debt is against the law. The good news, however, is that most people are able to keep their house, cars and all other personal belongings. As a general rule, so long as you stay current on the loan, you can keep the property. And after bankruptcy, you are free to repay debts to anybody you want, including your friends, family members and medical providers.

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