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Myths About Bankruptcy

If you’re drowning under financial obligations, we may be able to help you. At Wike Law, we will explain your rights, outline your options, and work closely with you throughout the bankruptcy or restructuring process. We know that you’re under a great deal of stress right now, but we’ll work hard to make this time easier on you.

We have over 20 years of experience in the field, and we don't charge for the initial consultation. We’ll handle all aspects of your bankruptcy from the initial petition and negotiations with creditors to filing the final paperwork. Our goal is to help you regain control of your finances and enjoy a fresh start.

Our top concern is for your satisfaction and protecting your rights. Separate fact from fiction by exploring some of the common Myths About Bankruptcy below.

Bankruptcy Myths

  • MYTH 1: IT’S REALLY HARD TO FILE BANKRUPTCY.

    Actually, filing Bankruptcy is a lot like the going to the dentist: in most cases, the worst part is worrying about it before it starts.

    With twenty-plus years in bankruptcy law and thousands of successful client outcomes, Wike Law makes it easy for you to understand your rights and choices and we prepare all the bankruptcy filings for you. Your only task is the simple one of bringing your paperwork to us…and we make that easy by letting you know exactly what papers we need. If bankruptcy is not the best option for you, I’ll let you know and tell you why, and we’ll take time to discuss a range of non-bankruptcy alternatives. We always put your best interests first and that’s why Wike Law enjoys a solid reputation for honesty and integrity.

    You wouldn’t keep living with a toothache just because you are afraid to go to the dentist. Nor should you continue to struggle pathetically with debt because you’re afraid to review your options. To schedule a free, relaxing debt consultation, call us today.
  • MYTH 2: “IF I FILE BANKRUPTCY, I'LL LOSE MY HOUSE, CAR, AND EVERYTHING I OWN.”

    First, no one loses property to a Chapter 13 Trustee because a Chapter 13 Trustee has no authority to take property from you and sell it. Chapter 7, however, is a different story.

    Only about one person in twenty loses an asset to the Chapter 7 Trustee. The reason the overwhelming majority of Chapter 7 debtors are able to keep all their property is because state and federal laws protect most or all of your property from the Chapter 7 Trustee. In other words, these laws provide exemptions that place most of your assets outside the reach of the Chapter 7 Trustee.

    Exemption rules are tricky. During your first appointment we perform an exemption analysis (and lien search) to identify the extent to which any of your property may be at risk. This crucial analysis will inform the decision on whether to file for bankruptcy, which chapter to choose, when to file, and what pre-filing steps to take to fully optimize the benefits. The typical result? The vast majority of our clients keep all their property. Forfeiture is rare and understood before the case is filed.

    Here’s some good news: In South Carolina, the homestead exemption was recently increased to protect $63,250 of equity in your home. If you and your spouse own the home together, the law protects $126,500 of your home’s equity. You heard that right. If you and your spouse own the home together, the Trustee can’t touch your home unless you have more than $126,500 of equity. The result can be different if you recently moved to South Carolina, or if you don’t properly claim the exemption, live outside South Carolina, or the home in question is not your primary residence.

    Similar exemptions protect equity in your vehicle, your retirement accounts, household items, tools of the trade and other asset types. Part of my job is to advise you about any assets that may be at risk and take steps to protect those assets before you file.

    What asset is most commonly forfeited to a Chapter 7 Trustee? Probably, tax refunds owed to the debtor before the case was filed. The Trustees are generally not interested in ordinary household items such as furniture, lawn mowers or guns – unless of course these items are of serious value to collectors. Generally speaking, the belongings of most debtors are not at risk. Will the Trustee poke around your house looking for assets to sell? No … that almost never happens.

    If you have assets that are not sufficiently protected by exemption laws, you may want to consider filing under Chapter 13. In Chapter 13, you’ll repay a portion of the debts through a court supervised repayment plan. No one loses assets to a Chapter 13 Trustee.
  • MYTH 3: “MY CREDIT WILL BE RUINED, AND I'LL NEVER HAVE A CREDIT CARD AGAIN.”

    Interestingly and ironically, the credit scores of most people who file Chapter 7 increase within one year after filing bankruptcy. Sounds crazy, right? But it’s true. First, wiping out credit card debt, medical debt and many other types of debt immediately lowers your debt to income ratio. Therefore, credit card issuers know that because you will have little or no debt after the bankruptcy you should be in a good position to repay any new debt. Second, a person can only file under Chapter 7 once every eight years, so credit card issuers know that if they issue you a new card you will not be able to discharge the debt through Chapter 7 any time soon.

    Most of our clients report receiving credit cards applications in the mail – often before their case is over. The interest rate on these cards will be high - at least at first – so don’t use them. I definitely don’t want you to fall back in debt. On the other hand, you will want to re-establish credit…so talk to me about that and we’ll give you the “re-establishing your credit” blueprint. Guaranteed.
  • MYTH 4: “I’ll NEVER BE ABLE TO BUY A HOME IF I FILE BANKRUPTCY.”

    One year after you file Chapter 13, or two years after you file Chapter 7, you should be eligible to obtain a new mortgage or refinance an existing mortgage at competitive rates through a special federal program underwritten by the Federal Housing Administration. Eligibility depends on your income and post-bankruptcy payment history, not on your credit score.

    I’ll put you in touch with a mortgage broker who has worked extensively with me and my bankruptcy clients since 2001. It is important that you rely on experienced professionals before and after your bankruptcy.
  • MYTH 5: FILING BANKRUPTCY MEANS YOU ARE SOMEHOW "IMMORAL".

    Most people file bankruptcy due to circumstances beyond their control. Often, the debtor or someone in the debtor’s household lost a job or income through death or divorce. Others file because of sky high interest on credit cards, car loans and mortgage loans. Often it’s financial distress caused by expanded “head count” due to live-in elder parents, under-employed disabled adult children, adopted children or step-children. Perhaps it was an unforeseen emergency, such as a leaky roof, braces for a child, or a medical event. Sometimes it’s just plain bad luck or simple over-spending. Perhaps it’s all of the above. The list goes on…

    The point is that Congress has provided bankruptcy relief as a safety valve for honest people who find themselves over-their-heads through circumstances beyond their control. Yes, bankruptcy should be considered a last resort, but it could be argued that in some cases it would be immoral not to file bankruptcy…immoral to ignore the opportunity of a fresh start and better financial future for you and your family especially when the path you’re on is leading you to financial catastrophe and an impoverished future. That’s how we feel at Wike Law, where clients on the journey to a good financial future are shown the utmost respect.
  • MYTH 6: FILING BANKRUPTCY IS SOMEHOW "IRRESPONSIBLE".

    Filing bankruptcy is an act of responsibility. It is taking responsibility for the debt, and more importantly, for improving the situation for you and your family. It starts by acknowledging how serious your debt situation is and taking a decisive step to end the cycle of debt and obtain a fresh start.

    Want to know what is irresponsible? To ignore the situation or to continue to struggle hopelessly to pay the minimum amount on credit cards - that's both irresponsible and unwise. And it’s not going to solve your debt problems. Filing bankruptcy – if it’s right for you – is a crucial first step toward creating a sound financial future for the rest of your life. Indeed, ignoring lawful, affordable debt relief is an act of financial irresponsibility and shows lack of financial sophistication. At Wike Law we believe the goal of getting a fresh start and secure future is a praiseworthy and responsible act.
  • MYTH 7: FILING BANKRUPTCY IS SOMEHOW “CHEATING THE SYSTEM”

    Remember when you applied for those credit cards? When you applied you were assigned to a certain “risk pool” based on your credit profile. Tens of thousands of individuals were also assigned to your same risk pool group. Although the credit card issuer had no way of knowing who in the group would file for bankruptcy, using sophisticated computer modeling and statistical analysis they did predict the default rate for the group as a whole. Armed with that knowledge, they charged the group as a whole a “risk premium” in the form of higher interest rates.

    Each time card issuers collect a payment they set-aside the “risk premium” portion to cover bankruptcy losses. Therefore, when someone files for bankruptcy, large commercial lenders don’t agonize about it, they just transfer funds from the reserve account to cover the loss. That’s right, your past payments have helped fund the reserve account that covers their losses.

    For credit card companies and other sophisticated institutional lenders, bankruptcy is a business risk they anticipate and eagerly accept. The rates they charge and the shameless tactics they use to lure customers are hallmarks of the system they created. It’s a system that so often forces people into bankruptcy.
  • MYTH 8: YOU HAVE TO GO BEFORE THE JUDGE AND BE GRILLED BY YOUR CREDITORS.

    Most people who file for bankruptcy in South Carolina never go before a judge. You will, however, attend a non-judicial, non-confrontational “341” meeting conducted by a Trustee. I will make sure you are fully prepared for this meeting. I have practiced bankruptcy law in South Carolina over 21 years and have appeared before all the Trustees. I know the types of questions each Trustee is likely to ask and will provide you a list of Trustee questions so you will be prepared.

    The meeting usually lasts five minutes. Although creditors are invited to participate, they seldom attend because in most cases there’s absolutely nothing they can do about your bankruptcy.
  • MYTH 9: YOU CAN ONLY FILE BANKRUPTCY ONCE.

    Many people think that if they filed in the past, they cannot file again. Even if you received a discharge in a prior bankruptcy, you may be able to file again right now. There are waiting periods between filings, but many people are surprised to learn how soon they can file a second bankruptcy if needed.
  • MYTH 10: YOU CAN’T WIPE OUT TAXES THROUGH BANKRUPTCY.

    Actually, we’ve wiped out hundreds of thousands of dollars of “old” tax debt for our clients. By "old" tax debt, I mean tax debts that are generally at least three years old. Several qualifications must be met, but once these qualifications are met, the taxes are gone - for good. We are talking here primarily about income tax (including penalties and interest). Withholding taxes and sales taxes are never dischargeable in bankruptcy.
  • MYTH 11: I'LL BE HUMILIATED... EVERYONE WILL KNOW I HAVE FILED.

    Unless you are a famous public figure, the chances are excellent that only the Trustee, your creditors and you will know you filed. While bankruptcy is a matter of public record, most news outlets don’t report on an individual’s filing. Keep the information to yourself if you don’t want others to know.
  • MYTH 12: I’M NOT BROKE ENOUGH TO FILE BANKRUPTCY.

    There is no minimum amount of debt that you must have to file for bankruptcy. An increasing number of our clients have excellent incomes, high credit scores and are current on all their payments. People with an expensive home and expensive cars are still able to qualify if they have more debt than they can handle.
  • MYTH 13: IT’S AGAINST THE BIBLE TO FILE BANKRUPTCY.

    Actually, the modern bankruptcy code is derived directly from the Bible. Look at the forgiveness of debts every seven years (the “Sabbatical Year” or “Jubilee Year”) in Deuteronomy, Nehemiah, and Leviticus and in many other sections of the Old and New Testaments. For example, in Deuteronomy 15:1-2, the Lord commands: "At the end of every seventh year you are to cancel the debts of those who owe you money.” Similarly, in Nehemiah 10:31 the Lord instructs us to “cancel all debts every seventh year.” Certain versions of the Lord’s Prayer ask God to “forgive us our debts, as we also have forgiven our debtors.”

    Some legal scholars have suggested that Congress chose the name “Chapter 7” because the Bible commands the forgiveness of debts every seven years. I don’t know if that one’s true or not – sounds like it could be a coincidence.
  • MYTH 14: FINANCE COMPANIES WILL TAKE MY HOUSEHOLD ITEMS IF I FILE BANKRUPTCY.

    If you borrowed money from a small finance company and listed household assets as collateral, they have rights under state law to take all or some of the assets listed as collateral. We will file a motion asking the bankruptcy court to wipe-out the liens on such items so that you will once again own them free and clear – as you did before you obtained the loan.
  • MYTH 15: DEBT CONSOLIDATION IS ALWAYS WORTH A TRY.

    Debt consolidation firms are typically extensions of the credit card industry. That’s right, they are the credit card industry’s last effort to squeeze money out of you. These firms, which are set-up as “non-profit” corporations, receive kickbacks in the form of “contributions” from the credit card companies. If the debt consolidators really cared about helping you out of a bind, they would negotiate with medical providers, finance companies, credit unions, mortgage companies, local banks and others… but they won’t! All too often, a person who is eligible for bankruptcy will agree to make unrealistically high payments to the debt consolidation firm only to find out that one or more of their credit card companies declined to participate in the program. The balances on the cards from those companies continue to increase.

    The time and money you spend paying the debt consolidation firms often serve only to delay your bankruptcy filing and worsen your financial condition.
  • MYTH 16: MY SPOUSE’S CREDIT SCORE WILL SUFFER.

    Your co-signer’s credit score will not be affected so long as the debt is paid on time. A notation may appear, however, on your co-signer’s credit report to indicate that a co-signer (you) filed for bankruptcy. Your co-signer’s credit score will not be lowered unless neither of you repays the debt and the delinquency is reported to the credit reporting agencies.
  • MYTH 17: YOU CAN PICK AND CHOOSE WHICH ASSETS AND DEBTS TO INCLUDE.

    All assets and all debts must be listed in your bankruptcy, even assets that were gifts and debts that you want to repay. To hide an asset or intentionally fail to disclose a debt is against the law. The good news, however, is that most people are able to keep their house, cars and all other personal belongings. As a general rule, so long as you stay current on the loan, you can keep the property. After bankruptcy you are free to repay debts to anybody you want, including your friends, family members and medical providers.

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