Ten Bankruptcy Myths De-Bunked

By Tim Evans
The Law Office of Timothy J. Evans, PLLC

There’s a lot of misinformation out there about bankruptcy. Here’s a list of 10 things
people have heard about bankruptcy that are just plain wrong.

1. Filing bankruptcy means that you are a bad person.

Bankruptcy is designed to help good people who are going through a bad time.
According to a study by The Institute for Financial Literacy in 2007, the typical
bankruptcy filer is:
 between the ages of 35 and 44
 white
 married
 working one or more jobs and earning less than $30,000
 female

2. People file bankruptcy because they racked up debts they knew

they couldn’t pay.
Again, statistics don’t back this up. The most common reasons for filing bankruptcy
include job loss, income deductions, over-extensions of lines of credit, illness or
injury. Most of my bankruptcy clients are working more than 40 hours per week.

3. I’ll lose my house and car if I file bankruptcy.

I can’t say this one is completely false. More than 95% of people who go bankrupt are
able to keep all of their property. It all depends on several factors, including the
value of the property and the amount of debt on it. That being said, chances are that
if you keep making the payments, you’ll be able to keep the property.

4. Bankruptcy is morally wrong.

Many people feel it is morally wrong to not pay their creditors. If you file a Chapter
13 bankruptcy, you will be paying your creditors back; that just allows you to modify
the terms to allow you the time the pay back your creditors. Even if you file under
Chapter 7, you can still voluntarily pay your creditors back after your discharge.
5. All my debts will be eliminated in bankruptcy.
By law, there are certain debts that cannot be eliminated. These include federally-
guaranteed student loans, certain criminal penalties, certain tax debts, and child
support and alimony.

6. My spouse must file bankruptcy with me.

If you are married, you can file bankruptcy alone or jointly with your spouse. There
are advantages and disadvantages to each that is beyond the scope of this report.

7. I should transfer property to a relative before I file bankruptcy to

protect it.
This is the last thing you should do. At best, this could be considered a transfer to “an
insider” and the transfer could be “set aside” during the bankruptcy. At worse, you
could be found to have committed fraud and face criminal penalties.

8. I have a job, so I don’t qualify to file bankruptcy.

One of the common reasons for filing is the loss of a job, so this one is definitely
untrue. Chapter 13 bankruptcy does require you to have regular income. This does
not necessarily mean income from wages or salary.

9. Medical debts cannot be discharged in bankruptcy.

Medical debts are considered unsecured debts. This means that in most cases they can
be totally eliminated in bankruptcy.

10. I can pay my bankruptcy attorney fees with my credit card, and
then have my credit card debt discharged.
There are two reasons this is not true. First, credit card purchases made immediately
before filing bankruptcy may not be dischargeable. Second, most attorneys’ credit
card processing agreements prohibit accepting a credit card for bankruptcy fees.
Some less than ethical lawyers will try to get around this limitation.

Tim Evans is a lawyer in Hattiesburg, MS who focuses on bankruptcy and

family law. He has helped people from all walks of life get a fresh start
using the relief available under the U.S. Bankruptcy Code. He welcomes you
to send him your questions to tjevans@timothyjevanslaw.com or call him at
(601) 255-5085.