Common Bankruptcy Misconceptions and Myths

It is up to you and whom you tell. We understand that bankruptcy is a matter of public record, but who will go into public records to search for it? Do you regularly go to the public records database to see if any of your friends or neighbors has declared bankruptcy? Only your creditors will know, and they are prohibited from making it public knowledge.

This is not true. New York Bankruptcy Law sets forth a list of assets that are exempt from the satisfaction of most creditor claims and which, in most cases, a debtor is allowed to keep even after filing bankruptcy. It is rarely a good policy to wait until all assets are absolved before filing for bankruptcy, as assets that normally would be exempt would now be lost. It would be highly advisable to consult the Law Offices of N.M. Gehi to determine which assets would fall under the exemptions allotted under the bankruptcy laws.

U.S.C. Sec. 525 prohibits any employer from discriminating against you based on your bankruptcy filing.

That is not necessarily the case. Under New York Bankruptcy Law, a Chapter 13 bankruptcy filing is often utilized as a strategy to prevent foreclosure. Under New York Bankruptcy Law, the homestead exemption is $50,000 per person ($100,000 for husband and wife/ joint filers). This means that anyone who owns real estate, if it is the filer’s primary residence, can keep up to $50,000 of that home's equity exclusive of the balance due the mortgage bank. Thus, if the filer maintains their mortgage and tax payments, in most instances under New York Bankruptcy Law, one can file for bankruptcy and keep the home.

This is not true. Like all lending institutions, mortgage lenders are willing to take risks with a debtor as long as the lender has enough security. This generally means charging higher interest rates and requiring personal guarantees. If a person who had filed for bankruptcy in the past applies for a mortgage and can fund a sufficient down payment, most banks will approve a mortgage loan.

Not necessarily. It is important to note that individuals with bad credit after filing for bankruptcy initially started out with bad credit before filing for bankruptcy. The effect a bankruptcy has on one’s credit is greatly dependant on the filer’s ability to pay their bills both prior to filing for bankruptcy and after bankruptcy procedures have been completed. Therefore, bankruptcy may have little to no net affect on a filer’s credit rating. However, a bankruptcy will remain on a credit report for 10 years. In most circumstances, after a year of prompt payment of their bills following a bankruptcy discharge, one may apply for a mortgage to buy a home and be approved. It is important to reiterate that it is likely the interest rate and related closing costs generally will be higher for someone who filed for bankruptcy in the last 10 years than for someone who has not.

This is not true. Once an individual files for bankruptcy, the automatic stay comes into effect and creditors cannot sue you, garnish your wages or restrain your checking or savings account.

This is not true. Although there are extremely limited exceptions, these bankruptcy clauses are unenforceable and are a tactic used to scare debtors into not filing bankruptcy.

An individual will absolutely not go to jail simply because they file for bankruptcy.