There are lots of things that spread simply by rumor and myth. Here are a few fun ones from popular culture:
The President isn’t really an American.
The government is hiding aliens in Nevada.
Elvis is still alive.
While its fun to think about these types of things, when it comes to your finances you should make decisions based on facts and qualified advice and not rely on what someone may have told you in passing.
This is especially true when it comes to bankruptcy.
Most people do not know much about what is really involved when you file for Chapter 7 bankruptcy. However, nearly everyone comes in with the belief that they should be afraid of filing and avoid it at all costs. This is largely because there are a lot of misconceptions out there about bankruptcy in general, especially Chapter 7.
There is a feeling of fear that surrounds Chapter 7 because people have perpetuated these misconceptions. Sometimes people have anecdotal evidence to make Chapter 7 sound frightening or they just make outrageous assertions about what happens to those who dare to file.
It is completely true that no one wants to be in the situation where filing for Chapter 7 bankruptcy is the logical solution, but there are many myths circulating out there making this situation sound much worse than it is in reality.
Let’s take a look at these misconceptions and strive to clear them up.
Misconception #1 – You Will Lose Your Retirement Funds
This one is simply not true, as in most cases, you will only lose your retirement funds by choice. Most retirement accounts qualify under the Employee Retirement Income Security Act or ERISA. This act sets standards which govern how retirement accounts function, and the relevant piece to those considering bankruptcy is that the Act specifies that your pension or retirement funds are guaranteed to you, even in the event of a bankruptcy filing.
Not every retirement account is protected by this act, so it is important that you find out whether or not yours is before proceeding. If you choose to cash out your retirement account in order to pay your debts, all of the cash that you remove from the account then becomes accessible to your creditors. If you leave it in the account, there is a good chance that you will have these funds available to you after your Chapter 7 bankruptcy.
Misconception #2 – You Will Lose Your House and Your Car
Many people are scared away from the idea of Chapter 7 because they are worried that they are going to be left homeless or without transportation after the ordeal is over. This is certainly a rational concern because if you’re already having financial troubles and then lose your means of transportation, how are you supposed to keep your job?
The good news is that thanks to new bankruptcy laws, it is possible to keep your house – and even your car, in some cases.
As long as the value of your home is below a certain amount, it will be protected from creditors. Currently, the limit is set generously high.
The homestead exemption is also designed to allow homeowners to protect a small amount of their home equity. In the state of Virginia, homeowners may exempt up to $5,000 of their home, and add another $500 per dependent. If married couples file jointly, the exemption rises to $10,000.
Misconception #3 – You Will Never Be Able To Get Credit Again
This could not be further from the truth. In fact, our experience has shown that if you handle your post-bankruptcy financial responsibilities properly, filing for Chapter 7 actually allows you to get back on your feet more quickly than participating in something like credit counseling.
Additionally, after you file, it will be much easier for you to begin building your credit back by making payments on time. Creditors will begin working with you within just a couple years, and the bankruptcy will be off your credit record in ten years.
Our Advice – Get the Facts
As responsible attorneys, our job is not to dispense specific advice on your financial situation via the internet. However, we are comfortable saying that before you make any important decisions, you should get the facts about the law from a qualified professional and not rely on hearsay from well meaning co-workers, friends or family members.
This is especially true with bankruptcy as there are long standing implications for the decision either to file, or not to file and pursue other avenues. Our suggestion is to make an appointment and speak to an experienced bankruptcy attorney about your particular situation so that you can understand your choices.