In my practice I constantly find that people have erroneous ideas about bankruptcy. Here are some wrong ideas about bankruptcy that I have frequently encountered:
It is very likely that the only people who will know that you have filed for bankruptcy are your creditors and the people who you tell. Bankruptcy filings are a part of the public record, but only people who are trying to find out about you will ever hunt up your bankruptcy information. If you don't want everyone you know to know that you filed bankruptcy, you just need to keep the information to yourself unless there is a good reason to disclose it.
This is almost always wrong. The fact is most people who file bankruptcy don't lose anything. Every state has exemptions that protect certain kinds of property. Using Colorado as an example, there are exemptions to protect such things as your house, your car, your business vehicles and equipment, household goods and furnishings, IRAs, retirement plans, the cash value in life insurance, wages, and personal injury claims. However, in preparing for bankruptcy, it is important to manage your exemptions intelligently to maximize their effects. Property that is not exempt can often be sold, and the sale proceeds can be used to acquire exempt property, to pay off liens on exempt property, or invested in an exempt IRA.
In fact, filing for bankruptcy is usually the only way for a person in a serious financial bind to rebuild his or her credit. If, after the bankruptcy is completed, debtors have stable employment, they can often obtain credit at reasonable rates within a couple of years; credit will usually be available almost immediately after bankruptcy, but at very high rates of interest.
Most of the people who file bankruptcy are good, honest, hard-working people, who only file as a last resort. Very often, people file for bankruptcy only after they have been struggling for a long time to pay the bills that are left over from some life-changing experience, such as a divorce, the loss of a job, a failed business venture, a serious illness, or some family emergency.
Nothing could be further from the truth. Creditors are required to stop all collection activities and contacts with debtors as soon as they learn about a bankruptcy. The filing of a bankruptcy triggers an "automatic stay” of creditors’ actions against debtors. After you file bankruptcy, the creditor is not even allowed to talk to you. In addition, the creditor must stop any collection attempts it has already started. Creditors who violate the automatic stay are subject to serious penalties.
Income taxes can often be discharged in bankruptcy if the taxes became due more than 3 years before the case is filed. The discharge of taxes can be complicated, and it is subject to several limitations. You need to discuss your tax situation carefully with your attorney. Filing a bankruptcy does NOT get rid of withholding or sales taxes no matter how old they are.
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