Common Bankruptcy Myths
Bankruptcy Myth 1 – The new bankruptcy law has eliminated bankruptcy as an option for most people.
Truth – The median income/means test, which is the most significant change in the law, actually disqualifies relatively few persons who would have previously been able to file under Chapter 7.
Bankruptcy Myth 2 – If I am unable to file Chapter 7 bankruptcy because I am disqualified by the means test, I am at the mercy of my creditors.
Truth – Chapter 13 may achieve a very substantial reduction of your debt and is often an excellent alternative when Chapter 7 is not an option.
Bankruptcy Myth 3 – If I have a level of income that would cause me to fail the means test, I will not be able to file a Chapter 7 case under any circumstances
Truth – The means test only applies when more of your debt is consumer than non-consumer. Examples of consumer debt include credit cards, medical bills, home mortgages (personal residence), etc.. Examples of non-consumer debt include debts owed to vendors or suppliers of your business, mortgages on investment real estate, etc. As an example, a high income person, who would otherwise be disqualified under the means test, may be able to file Chapter 7 to avoid deficiencies on failed real estate investments if the mortgage amounts exceeded the total of his consumer debt.
Bankruptcy Myth 4 – The required appearance in a typical Chapter 7 bankruptcy case is a court proceeding similar to what you might see on television.
Truth – The appearance occurs in a hearing room rather than a court room and is presided over by a trustee, not a judge. Bankruptcy trustee’s are local professionals, i.e. cpa’s, attorney’s, etc. who contract with the United States Trustee’s Office to evaluate bankruptcy cases. If the bankruptcy schedules have been prepared well and are supplemented with other documentation that the trustee will need to evaluate the case, the meeting is usually brief.