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Common Bankruptcy Myths

Many people who could benefit significantly from the federal bankruptcy laws fail to do so because of mistaken beliefs about the process. This page dispels many of the common myths surrounding bankruptcy.

1. Myth: Your credit will be ruined and your credit score will fall dramatically if you file for bankruptcy.
Reality: You can do as much, if not more, damage to your credit rating by having your credit cards maxed out and paying all your bills late. You can even bring your score down by having too much credit, even if you are paying it all in a timely manner. Most creditors will consider you a better credit risk after a bankruptcy because you have a clean slate, with significantly less debt.
2. Myth: You will lose everything if you file for bankruptcy protection.
Reality: Most states allow you to keep some value in your home, as well as your vehicle and other personal items. There is also a federal exemption amount for interest in a home.
3. Myth: You must be destitute to file for bankruptcy protection.
Reality: You don’t have to wait until you have been sued for non-payment or face repossession, garnishment or foreclosure to file for bankruptcy protection. Under the revised bankruptcy laws, you cannot file under Chapter 7 unless you can show the court that you lack the means to repay your creditors over a three-to-five-year period. But you can initiate bankruptcy proceedings if you can demonstrate that you have no way to repay your creditors.
4. Myth: You can max out your credit cards and discharge the debt in a Chapter 7.
Reality: You cannot discharge certain types of credit card charges or cash advances made in proximity to your filing. If it can be shown that you intentionally charged items or took cash advances knowing you would be filing for bankruptcy protection, you can be charged with criminal fraud. The bankruptcy court may also decide to dismiss your petition as fraudulent.
5. Myth: Filing for bankruptcy protection can cost you your job or your apartment.
Reality: Even if your employer or landlord found out that you had filed for bankruptcy protection, they will likely prefer that to your prior status. Your employer would rather have someone focused on the job instead of personal financial problems. Your landlord would rather have you paying them than your creditors.
6. Myth: Everyone will know that you filed for bankruptcy protection.
Reality: Even though the bankruptcy records are public, few people ever see them. These records are generally viewed only by potential creditors. If you have filed for bankruptcy, they will need to be notified anyway.
7. Myth: Bankruptcy is a sign of failure.
Reality: Bankruptcies result from many factors, including the loss of a job, health issues or divorce. Some of the most successful people in history have filed for bankruptcy protection, including Donald Trump.

At Bailey & Galyen, our bankruptcy lawyers have extensive experience handling all types of bankruptcy issues, including the following:

We will take the time needed to listen to your situation, understand your concerns and answer your questions. You should obtain the information you need to make an informed decision about bankruptcy and your future.

Contact a Texas Consumer Bankruptcy Specialist and Business Bankruptcy Lawyer

If you would like to obtain additional information about Texas bankruptcy, explore your options, learn about the bankruptcy process or discuss your particular situation with an experienced Texas bankruptcy attorney, please schedule a free initial consultation by calling us toll free at 877.345.6767 (Dallas – Ft. Worth area), 866.715.1529 (Houston area) or 866.678.1900 (South Texas). If you prefer, you can also fill out our intake form and we contact you to schedule a consultation.

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Can bankruptcy save my home from foreclosure?

Can bankruptcy save my home from foreclosure?

Under current bankruptcy laws, an individual or family may be able to stop foreclosure of their family home. Many families who are facing foreclosure find that either their mortgage company will not work with them to stop a foreclosure, or want a very large cash payment in order to modify their mortgages.

Many individuals and families are able to save their homes from foreclosure by filing a Chapter 13 bankruptcy, which is a debt reorganization under bankruptcy law. In most cases, filing Chapter 13 stops the foreclosure process, preventing eviction and giving the homeowner time to file a plan to reorganize debts. Without the looming threat of foreclosure and eviction, homeowners can work with their attorney to create a plan that allows them to affordably reorganize their debts and save their home.

Chapter 13 allows the homeowner to create a plan to repay the house payments that were missed prior to bankruptcy over three to five years. If the homeowner has fallen behind on property taxes, the property taxes can be paid over time in the Chapter 13 plan as well. Normally the homeowner makes one payment to a court appointed trustee, who pays debts included in the plan from the payment. After filing Chapter 13, the homeowner then resumes making the regular monthly payment on the home, while the arrears are paid to the mortgage company by the trustee.

Chapter 13 can make it easier for the homeowner to resume making their house payments by restructuring their other debt as well. Credit cards, medical debt, personal loans, and other unsecured debts are paid through the plan, but may not have to be paid in full, depending on the homeowner’s income and family size. Many chapter 13 filers pay only a small percentage on these debts with the balances being “discharged” or forgiven by the court when the plan is successfully completed. Some car loans can be restructured to reduce the balance of the loan to the value of the vehicle, and to reduce the interest rate.

A homeowner who is facing foreclosure may be able to use the protections of bankruptcy to allow them to catch up missed payments over a reasonable period of time, and protect the equity they have in their home.

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