Ask ten people what happens when you file bankruptcy and you’ll get eleven answers. Most of them will be wrong.
Over the years, I’ve sat across the desk from hundreds of people in St. Charles County and the St. Louis area who waited far too long to get help. Not because they didn’t need it, but because of something they “knew” about bankruptcy. They were sure they would lose their house. They were sure their boss would find out. They were sure they’d never get credit again. And in nearly every case, what they “knew” simply wasn’t true.
That’s what this page is about: the misperceptions and misunderstandings that keep good, hardworking people stuck in debt longer than they need to be.
Where Do These Bankruptcy Myths Come From?
Some of these myths are just old information that got passed around the dinner table. The rules have changed over the years, and a story from your uncle’s 1980s bankruptcy doesn’t tell you much about filing today. Some come from embarrassment. People don’t talk about money troubles, so the half-truths never get corrected.
But let’s be honest about where a lot of it comes from. Many of these myths are put out there, and kept alive, by the very people who profit when you don’t file. Credit card companies, debt collectors, payday lenders, and debt settlement outfits all make money as long as you keep paying. It’s in their interest for you to believe bankruptcy is shameful, ruinous, or a “last resort” you should avoid at all costs. Every month you keep sending them money you don’t have is another month they get paid.
Here’s the thing they’d rather you not think about: bankruptcy is your right. The power to create bankruptcy laws is written right into the U.S. Constitution, and Congress built the Bankruptcy Code specifically so honest people facing debts they can’t pay can get a fresh start. Filing isn’t cheating the system. It is the system. Lenders know bankruptcy exists when they extend credit, and they price that risk into every interest rate and fee they charge you.
So before you let a myth make your decision for you, let’s look at the most common ones I hear.
13 Common Bankruptcy Myths
Myth #1: “I’ll lose everything: my house, my car, and all my belongings.”
Most people who file Chapter 7 keep all, or nearly all, of their property. Missouri and federal exemptions protect things like household goods, a vehicle, tools of your trade, and equity in your home up to certain limits.
Read the full post on Myth #1 →
Myth #2: “My credit will be ruined forever.”
Many people’s credit scores start recovering soon after discharge, especially if they were already behind on payments. Wiping out old debt often makes you a better credit risk, not a worse one.
Myth #3: “Everyone will find out: my employer, my neighbors, my church.”
Bankruptcy is a public record, but almost nobody goes looking. And federal law prohibits employers from firing you simply because you filed.
Myth #4: “I have a job, so I make too much money to file.”
Having a paycheck doesn’t disqualify you. The “means test” compares your household income and expenses to Missouri figures, and plenty of working people qualify for Chapter 7. If not, Chapter 13 may be an option.
Myth #5: “Bankruptcy wipes out every debt I have.”
It wipes out most of the debts that drown people, like credit cards, medical bills, and personal loans. But some debts usually survive, such as child support, most student loans, and certain taxes. Knowing which is which matters.
Myth #6: “If I’m married, my spouse has to file too.”
One spouse can file alone. The non-filing spouse’s credit generally isn’t affected, except for debts you owe jointly.
Myth #7: “Only irresponsible people file bankruptcy.”
Job loss, medical bills, divorce, and family emergencies are behind a huge share of the cases I see. Life happens. Bankruptcy exists because it happens to good people.
Myth #8: “You can only file bankruptcy once in your lifetime.”
Not true. There are waiting periods between filings (for example, eight years between Chapter 7 cases), but there’s no lifetime limit.
Myth #9: “I should pay back my family or move my property to a relative before I file.”
This is one of the most damaging myths out there. Paying favorite creditors or transferring property before filing can be undone by the trustee, and it can cause you serious problems in your case. Talk to a lawyer before you move any money or property.
Myth #10: “I’ll have to stand in front of a judge and explain myself.”
Most Chapter 7 clients never see a judge. You’ll attend a short “341 meeting” with the bankruptcy trustee, usually lasting just a few minutes, and your attorney is right there with you.
Myth #11: “I’ll lose my 401(k) or retirement savings.”
Qualified retirement accounts like 401(k)s and IRAs are generally protected in bankruptcy. In fact, draining your retirement to pay credit cards is often the worst move you can make.
Myth #12: “I’ll never be able to buy a house after bankruptcy.”
People buy homes after bankruptcy all the time. Many mortgage programs have set waiting periods, and with steady income and rebuilt credit, homeownership is very much within reach.
Myth #13: “I can’t afford to hire a bankruptcy attorney.”
If you’re paying hundreds of dollars a month toward credit cards that never go down, you may already be spending more than a bankruptcy would cost. A consultation will tell you what filing would actually cost in your situation.
More on Each Myth Coming Soon
Each of these myths deserves more than a couple of sentences, so I’m publishing a full post on every one of them, one a day. As each post goes live, the myth above becomes a link to it, so this page is your one-stop guide to separating bankruptcy fact from fiction.
Don’t Let a Myth Make Your Decision
You have a right to a fresh start, and the only way to know whether bankruptcy makes sense for you is to get the real facts about your situation. Not your neighbor’s. Not your uncle’s. Not the credit card company’s. Yours.
If you’re in St. Charles County, St. Louis, or the surrounding area and you’re tired of wondering, give Markwell Law a call at (636) 486-1093. We’ll sit down, look at your situation honestly, and tell you what your options really are.