1 Lies Creditors Tell Debtors About Bankruptcy
Creditors often have various reasons to mislead those who owe them money. Firstly, the original creditor typically doesn’t hold a professional license, meaning they face no consequences for occasionally telling lies. Debt collection agents, although their companies may be required to be licensed, are known to lie because they believe that the debtor will never find out the truth. Additionally, it’s important to note that many creditors and debt collectors lack professional education, which may result in them not realizing that what they are saying is untrue. A lie can be more convincing when the person telling it genuinely believes it. Furthermore, these claims often stem from the individual’s subjective opinion. Rather than admitting to dishonesty or a lack of knowledge, creditors may feel justified in exercising their rights under the First Amendment to “free speech.”
Well, none of that does you, as a debtor, any good. You were probably scared and embarrassed by the call from the creditor. You certainly haven’t studied the debt collection and bankruptcy laws, so how do you know the truth?
So this is my list of the common lies creditors might tell debtors about Bankruptcy.
1. You will lose everything if you file Bankruptcy.
Many people believe that filing for bankruptcy means they will lose everything, so this lie is easy to accept. However, state laws, known as exemptions, actually protect many of your belongings up to a reasonable value. These laws safeguard the equity in your home, vehicle, retirement accounts, and household items. In reality, most people who file for bankruptcy end up losing nothing.
If you own valuable assets that might be at risk, there are options to protect them. For instance, in Chapter 13 bankruptcy, you can take up to five years to pay the value of any unprotected asset. In Chapter 7 bankruptcy, trustees may allow you to pay the value of these assets over a period of six months to one year. The end result is the elimination of the remaining debt.
2. You will “ruin your credit.”
Many people also believe that filing for bankruptcy “ruins their credit.” No one should claim that filing for bankruptcy is “a good way to your credit.” But claims that bankruptcy ruins it or prevents someone from obtaining credit for many years are grossly overstated. However, even I was pleasantly surprised to discover that some of my clients experienced an increase of 100 points in their credit scores within just 30 days after filing for bankruptcy. It’s well-known that many individuals receive numerous offers to finance new cars right after their bankruptcy case concludes, seeing such a significant credit score boost in the first month post-filing was unexpected. It’s important to note that this outcome doesn’t happen for everyone, but it highlights that bankruptcy is just one factor contributing to a person’s overall credit score.
3. You will never get credit again.
Yeah, this is another variety of the previous lie.
4. Everyone will find out about your Bankruptcy.
In the past, many small-town newspapers published a weekly list of individuals who were declared “bankrupt.” Thankfully, those days are behind us. Although accessing bankruptcy records is still easy and free, most people prefer to spend their time on more productive activities. If someone does discover your situation and chooses to gossip, they’re probably not the nicest person—someone who isn’t worth your concern. And anyone worthy of your respect will see such people with the contempt they richly deserve.
5. Bankruptcy is a sin – if you don’t pay your debts and file for Bankruptcy, God will punish you.
The Bible addresses creditors’ obligations towards unfortunate debtors in Deuteronomy 15:1-11, saying, in the pertinent part, “At the end of every seven years you (the creditor) shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD’s release.” In other words, our Lord God requires creditors to be compassionate to Debtors who can’t pay their financial obligations. The only sin is that of a grasping creditor who demands repayment when it isn’t possible.
6. Bankruptcy won’t eliminate the debt owed to us because…
Tax debts, student loans, child support, marital settlement obligations, and judgments relating to intentional and criminal actions are usually ineligible to be discharged through a Bankruptcy. There is a comprehensive list of debts someone usually can’t eliminate in Bankruptcy in 11 USC §523 (in the bankruptcy code). It’s not that hard to look up or read this information online.
However, the Bankruptcy laws provide exceptions that allow those debts to be eliminated in some situations. A clever bankruptcy lawyer understands these “loophole” and in the right circumstances, may be able to eliminate these debts anyway.
But a court judgment? Easy to eliminate – it’s a standard part of any bankruptcy, (although if the judgment was recorded as a lien, your attorney may have to move quickly to get the lien released). A credit card or medical debt? Certainly, and very typical in most cases! While there can be problems if a credit card debt is recent, your bankruptcy attorney can offer strategies to avoid this potential problem. A debt to your brother-in-law, the jerk? Of course, this debt can be discharged in Bankruptcy!
7. Former creditors can choose not to do business with you if you file for Bankruptcy.
While this statement has some validity, it’s important to note that hospitals and medical providers that accept government insurance programs cannot refuse to treat you simply because you filed for bankruptcy, even if they were included in your bankruptcy case. Creditors who refuse to work with you will take this step primarily because you haven’t paid them; your bankruptcy filing is just an excuse for their decision.
8. You risk losing your security clearance.
Having too much debt and being unable to pay it as agreed is makes someone a security risk. Many employees are advised by their superiors to retain their security clearance by filing for bankruptcy. Bankruptcy law also prohibits government employers from refusing to hire, firing, or demoting someone solely because they filed for bankruptcy. This protection is outlined in 11 U.S.C. § 525. It’s easy to find and read this information online.
9. You can only file Bankruptcy once.
It is possible for someone to file for Bankruptcy multiple times. While bankruptcy laws restrict the ability to discharge debts, some individuals manage to file bankruptcy several times. It’s inaccurate and misleading to claim that someone can file only once and no more.
10. You can only file for bankruptcy if you are unemployed or living below the poverty line.
Most individuals who file for bankruptcy are typically middle-income wage earners, self-employed, or business owners. So this claim is obviously a lie. Those who are unemployed or living in poverty usually do not receive much benefit from filing for bankruptcy, as even a debt collector with a court judgment cannot collect from them. Additionally, low-income individuals often have limited access to credit, making it less likely that filing for bankruptcy would be worthwhile for them.
11. You’ll lose your job if you file for bankruptcy.
It is illegal for an employer to terminate someone simply for filing for bankruptcy. In my 40 years of practicing bankruptcy law, I have never seen this happen. In most cases, your employer doesn’t even need to know that you’ve filed for bankruptcy. If an employer were to fire someone for this reason, they might have to let go of many other employees as well. Good workers are hard to find and keep.
12. You can’t file bankruptcy unless you are a US Citizen.
Noncitizens in the US may feel especially vulnerable and justifiably concerned in today’s political climate. However, bankruptcy laws allow anyone residing in the US to seek relief from their debt problems through bankruptcy. Additionally, US citizens living overseas can also file for bankruptcy in the US, as long as they have assets (such as a bank account) in at least one US state.
Does your employer expect or even require you to deceive customers or others you interact with? Would you accept a job that mandates you to be dishonest? I would love to hear your thoughts on this matter.
Additionally, if you’ve had creditors tell you something about bankruptcy that you suspect might not be true, please let me know. I would be happy to address your concerns and update this article accordingly.
