If you think you know all you need to know about the new bankruptcy law, you might want to think again. There's a lot of misinformation out there, and much of what you think you know might not be true.
A consumer survey conducted by the American Bankers Association showed that more than half of those surveyed were aware that Congress had recently passed a new law, but that doesn't mean those consumers knew what was actually in the legislation.
And bankruptcy folklore continues to emerge. So much so that Experian, a credit reporting agency, has joined with bankruptcy attorneys to correct the top 10 myths that Experian uncovered.
Myth No. 1: Consumers can file for bankruptcy as many times as they like.
Some strict limitations have been set by the new law. Debtors will not be able to file Chapter 7 bankruptcy if they've been through a Chapter 7 within eight years of the new filing. If they want to file for Chapter 13, they will not receive a discharge within two years of a previous Chapter 13 discharge and within four years if they were discharged from a Chapter 7, 11 or 12 bankruptcy.
Myth No. 2: Filing for bankruptcy will give a consumer a new start with credit.
Not necessarily. "Bankruptcy is a negative mark on the credit report that will impact a credit score on a consumer's credit profile," says Samah Haggag, manager of analytics for Experian.
This mark can lead to higher interest rates, the inability to rent an apartment and difficulty getting a job. Haggag advises consumers to consider all options like debt consolidation and credit counseling before attempting to file for bankruptcy.
Myth No. 3: The car, house and boat can be kept without having to pay off the loans when included in the bankruptcy file.
You can't keep them without paying the loan," says Jay Westbrook, bankruptcy scholar and professor of the University of Texas Law School at Austin, "assuming that when you bought the car, for instance, you gave the lien on the car for the purchase price."
He adds that if the vehicle is repossessed and you file before the car or boat is sold you can get it back.
"In order to do that you have to make sure there's insurance, and you have to agree to pay off the loan in order to keep it."
Myth No. 4: All debts can be discharged in a bankruptcy filing.
Bankruptcy experts say certain debts such as child support, student loans and most taxes are not discharged.
Myth No. 5: When one spouse files bankruptcy it will not affect the other's credit. It will if they have one or more joint accounts.
"There are laws against causing the bad credit of one spouse to be automatically attributed to the other," says Westbrook. "But, as a practical matter, filing could have a negative effect on the other spouse. It shows up as a bankrupt account."
He explains that marriage overall is handled differently from other joint accounts. "For example, say a sister files for bankruptcy, provided the brother continues to pay off the account, the brother will not be affected by the bankruptcy."
Myth No. 6: Filing bankruptcy could cost you your job.
Technically, this is not true.
Bankruptcy experts say a current employer can check an employee's or potential employee's credit report provided they have the employee's written permission.
Employment lawyer Linda Correia of Webster, Fredrickson & Brackshaw in Washington, D.C., says that a statute under the bankruptcy code prohibits discrimination against an individual who is or has been a debtor.
"However, it prohibits an employment action 'solely' because the individual is or has been a debtor. Courts have interpreted this language very strictly, however, so if the employer proves that one or more other reasons for the action also were at play, and not solely the bankruptcy, the employer prevails," says Correia.
Myth No. 7: Purchasing a home and obtaining new credit after a bankruptcy is out of the question.
According to Haggag, creditors and lenders will look at a consumer's most recent credit history more than the past.
"Each lender varies in their business practices. However, the length of time since the bankruptcy was filed is often taken into consideration by lenders," says Haggag. "Also, most lenders will factor in other items, such as length of time in current employment, income, etc., along with the credit history, in order to make a decision."
Myth No. 8: A consumer can choose whether to include all their debt in a bankruptcy filing.
Bankruptcy experts stress that all debts must be listed. Misinformation or neglecting to include certain debts can lead to additional cost and the possible dismissal of the bankruptcy case.
Myth No. 9: Late payments on a credit report are just as bad as filing for bankruptcy.
While late payments are frowned upon, they are not viewed as negatively as a bankruptcy filing. "The late payment will be deleted from the credit report after seven years has passed," says Haggag.
Myth No. 10: A spouse can proceed with filing for joint bankruptcy without getting the other's permission.
Bankruptcy experts say both spouses must give permission for the filing of a joint bankruptcy.