Contact Us

P.O. Box 1932
Philadelphia, PA 19105

215-279-8940

Bankruptcy Myths


There is a lot of false information regarding bankruptcy. Here is a list of common myths we’ve encountered. Please consult with a reputable bankruptcy attorney serving Philadelphia or Pennsylvania when considering whether bankruptcy is or is not an option for you. You can reach us at (215) 279-8940 or you can contact us online.

The Myths

  1. My employer or potential/future employer will discriminate against me because I filed for bankruptcy protection.
  2. I have to be broke or behind on my bills to file bankruptcy.
  3. Bankruptcy is expensive.
  4. I will lose my home.
  5. My credit will be destroyed forever.
  6. I won’t be able to get a home, an apartment or car.
  7. You can’t go bankrupt bankruptcy law changed.
  8. The new law says you have to pay everyone back.
  9. It will become public information.
  10. You can’t go bankruptcy on credit cards any more.
  11. After you take a course you must wait six months before you can file a bankruptcy.
  12. I’m a failure if I file for bankruptcy.
  13. There’s a secret way to make your creditors accept a fraction of the debt.
  14. I’ve hired a debt settlement firm to help me pay off all of my debts at a deep discount in three years or less and now I won’t have to file for bankruptcy.
  15. I should max out my credit cards and use up what is left.
  16. I should leave one card out of the bankruptcy.
  17. My credit score will go down.
  18. I’ll never get credit again, or, I won’t be able to get credit for seven years.
  19. Bankruptcy does not apply to certain creditors.
  20. Bankruptcy is the answer to all my financial problems.


Myth #1: My employer or potential/future employer will discriminate against me because I filed for bankruptcy protection.
Employers and potential employers are prohibited from discriminating a person based on the fact they filed for bankruptcy protection under the U.S. Bankruptcy Code.

Top


Myth #2: I have to be broke or behind on my bills to file bankruptcy.
No, no, no,  Don’t wait until you’ve drained out your savings. And don’t touch your 401(K). Consult with a bankruptcy attorney right away if you do not see a way out of your current financial situation.

Top


Myth #3: Bankruptcy is not affordable.
Most bankruptcy attorneys have payment plans. In general, you will be advised to stop all credit card payments, which will free up money for fees. In Chapter 13, generally half of the fees are paid through the plan payments.

Top


Myth #4: I will lose my home.
In Chapter 7, as long as you are current on your payments, you can keep your home. In Pennsylvania, at least a portion of the equity in your home can be saved. In chapter 13 you can even cure arrearages in your mortgage.

Top


Myth #5: My credit will be destroyed forever.
Bankruptcy is reported on your credit report for up to 10 years. This does not  mean you can’t get credit for 10 years. You probably already have bad credit. Most of the  time credit scores will go up after filing bankruptcy do to your debt-to-income ratio improving.

Top


Myth #6: I won’t be able to get a home, an apartment or car.
People who filed for bankruptcy do and have rebuilt their credit after bankruptcy. They go on to buy homes and cars. Your credit score may actually increase after bankruptcy because a discharge in bankruptcy will have a positive effect on your debt-to-income ratio.

Top


Myth #7: You can’t go bankrupt bankruptcy law changed
The 2005 Reform Act made it slightly more difficult to file for bankruptcy, but it is still possible. Consult with a consumer bankruptcy to determine if you qualify. Personal bankruptcy is actually more common now than before the 2005 Reform Act took effect. In 2010 individual bankruptcies are actually surpassing the large amount of bankruptcies filed just before the law changed.

Top


Myth #8: The new law says you have to pay everyone back.
In Chapter 7 bankruptcy, debts are wiped out with the exception of certain taxes, child support/alimony, student loans and damages involved with fraud or DUI accidents. In Chapter 13 many debts are drastically reduced, and in fact if you have arrearages on your mortgage interest stops on the arrearage.

Top


Myth #9: It will become public information.
Technically yes. But it generally won’t be published in the newspaper. It is public information, and anyone that wants to can go to the Bankruptcy Court and request your file. Additionally, the information is available on a Federal Bankruptcy database but to access it, you must have an account.

Top


Myth #10: You can’t go bankruptcy on credit cards any more.
False. Credit cards are unsecured debts and will generally be discharged by bankruptcy.

Top


Myth #11: After you take a course you must wait six months before you can file a bankruptcy.
Credit counseling must be completed within six months of filing bankruptcy. Check with the US Trustee’s Website for authorized Credit Counseling courses.

There is no waiting requirement after completing credit counseling to file for bankruptcy.

Top


Myth #12: I’m a failure if I file for bankruptcy.
Plenty of productive and responsible people have filed for bankruptcy. Ask yourself, if you can be more productive and successful if I did not have this debt?

Top


Myth #13: There’s a secret way to make your creditors accept a fraction of the debt.
It is true that credit card companies will offer to settle on stale debts. However, creditors may, and often do, sue on these stale debts. Unless you have a valid defense for the lawsuit, you will most likely lose the case. In Pennsylvania, even though they cannot garnish your wages they can still get a judgement, and either seize or put a lien on your personal property, including bank accounts.

Assuming they do settle, what the creditors and debt settlement companies don’t tell you is this: the amount forgiven will be considered income to you and you will be taxed on the amount forgiven. It’s better to owe your credit card money than the IRS because you can discharge the credit card debt in bankruptcy much more easily!

Top


Myth #14: I’ve hired a debt settlement firm to help me pay off all of my debts at a deep discount in three years or less and now I won’t have to file for bankruptcy.
Debt settlement firms aren’t lawyers. There is nothing they will or can do for you should your creditors decide to sue you. Creditors do not have to settle with you at all! Most of the time, the debt settlement companies will keep most of the money for themselves, paying off  little of an actual settlement. They can’t do anything for you that you can’t already do for yourself, not pay your creditors then work out a settlement.

If you do decide to hire a debt settlement company, please be sure to check with the Attorney General offices of both Pennsylvania and the state the company is located. There are lots of warnings issued by governmental agencies regarding the dangers of hiring a debt settlement companies. Check out the NCLC article regarding debt settlement companies.

Top


Myth #15: I should max out my credit cards and use up what is left.
No, no, no! Accumulating debt with an anticipation of filing for bankruptcy may be considered fraud. Bankruptcy is for the “unfortunate but honest debtor.”

Top


Myth #16: I should leave one card out of the bankruptcy.
ALL debts must be listed on the bankruptcy petition. Everyone you owe money to must be listed. This includes friends and families. See Do’s and Don’ts of Bankruptcy.

Top


Myth #17: My credit score will go down.
Your credit score is likely already very low. Often bankruptcy will start to improve credit scores rather right after discharge because your debt-to-income ratio will improve. What would it take for you to get out of debt? Use this calculator to figure it out. Most people continue to make minimum payments not realizing the amount of money it will actually take to get out of debt. Do not make the mistake of getting trapped in the cycle of making minimum payments, never being able to live debt free. Debt free is a great goal to have.

Top


Myth #18: I’ll never get credit again, or, I won’t be able to get credit for seven years.
After filing for bankruptcy, your debt-to-income ratio improves. This will help your credit score. Additionally, you can not file again for eight years (in case of Chapter 7) so you’re actually a safer bet for the creditors.

Top


Myth #19: Bankruptcy does not apply to certain creditors.
Bankruptcy applies to all other banks. Generally, all unsecured debt will be discharged in a Chapter7. In Chapter 13, the amount you pay back will depend on your payment plan.

Top


Myth #20: Bankruptcy is the answer to all my financial problems.
False. Bankruptcy is an answer to your immediate financial circumstances. It’s meant to help the “unfortunate but honest” debtor. But if you don’t change the reason why you got into bankruptcy you may end up back where you started. Sometimes it is just a matter of solving the one problem that caused you to go bankrupt, such as replacing a job. But just as often you will need to make fundamental changes to your lifestyle to prevent you from going back into debt.

Have additional questions? Call a bankruptcy attorney serving Philadelphia and the Delaware Valley today at (215) 279-8940.

Arjont Group Law Office of Roger Traversa is designated by Congress as a debt relief agency. Among other things, we help people file for relief under the Bankruptcy Code. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a Philadelphia bankruptcy attorney for individual advice regarding your own situation.