Many people have misconceptions and false ideas about bankruptcy and its effects.  Let’s look at some of the top bankruptcy myths.

Myth #1: All debts are completely wiped out in a Chapter 7 bankruptcy. This is a popular myth that is completely false.  In a Chapter 7 bankruptcy, certain types of debts cannot be discharged or erased. These debts include alimony, child support, government-issued or guaranteed student loans, and debts acquired as the result of fraud.  Also, if you owe money to someone as part of a legal settlement, it’s very unlikely that a judge will discharge that.  Debts acquired as a result of legal settlements are rarely discharged.

Myth #2:  If you’re married, both you and your spouse must file for bankruptcy.
This myth is not necessarily true, especially if one spouse has a lot of debt in his name only.  However, if you and your spouse have a lot of debt in both your names, then you’ll probably want to file jointly.  Otherwise, your creditor can demand payment for the entire debt from the spouse who didn’t file.  Consult with a knowledgeable bankruptcy attorney to determine whether both spouses should file.

Myth #3: You can only file for bankruptcy once. You can file for bankruptcy multiple times.  However, according to the new bankruptcy law that was passed in October 2005, you are required to wait longer between bankruptcy filings.  Currently, you can only file for Chapter 7 bankruptcy once every eight years, and Chapter 13 once every two years.  You are required to wait four years between filing a Chapter 7, and a Chapter 13 bankruptcy.  Multiple bankruptcy filings can wreak havoc on your credit score, since each bankruptcy filing can remain on your credit record for up to 10 years.      

Myth #4: Everyone will know I’ve filed for bankruptcy and my reputation will be ruined. Unless you’re a celebrity, famous person, or a major corporation, it’s very unlikely that people will know about your bankruptcy (aside from your creditors).

Bankruptcy is a public legal filing; however, there are thousands of people filing for bankruptcy each month, so very few news publications have the space, time, or desire to publish all bankruptcy notices.

Myth #5: I can max out my credit cards, and then file for bankruptcy. This type of situation could be classified as fraud, depending on the circumstances involved.  The trustee in your bankruptcy case will review all your purchases right before your bankruptcy filing.  Your trustee will determine whether you purposely attempted to defraud creditors.