Truths and Myths about Los Angeles Bankruptcy

Bankruptcy myths persist, despite a wealth of information available online and elsewhere. If you are considering filing for bankruptcy, it is essential that you get the truth about the bankruptcy process, and what bankruptcy can actually do for your unique situation. The conditions that place people in circumstances where bankruptcy may be necessary are widely varied, and the best advice is always to seek counsel from an attorney who specializes in Los Angeles County Bankruptcy Law before you make any decisions. We've included some of the more common myths on our site here, along with the truth about bankruptcy and what you can expect.

Myth:  Bankruptcy ruins your credit permanently.

Fact:  Filing for bankruptcy is often the first step to rebuilding your credit. Bankruptcy will get rid of most negative information on your credit report and will allow you to rebuild your credit history over time. Also, the longer it has been since your bankruptcy, the less emphasis creditors will place on it when determining your credit score.

Myth:  The debts discharged by bankruptcy are subject to a forgiveness tax.

Fact:  Debts that are discharged through bankruptcy are not subject to any type of forgiveness tax. Forgiveness tax may be levied on debt that is forgiven by a creditor outside of bankruptcy, such as when a mortgage lender renegotiates your mortgage for less than the original loan, or if your lender accepts a short sale or deed in lieu.

Myth:  If I file for bankruptcy, it will damage my spouse's credit rating as well.

Fact:  Your bankruptcy will not affect your spouse's credit, unless you are both filing for bankruptcy. Your spouse will be accountable for any debts that are in both your name and your spouse's name, even if they are discharged under the bankruptcy, if he or she is not filing bankruptcy as well. For example, if you have a joint credit account and you file for bankruptcy, the lender may pursue collection with your spouse, even if your bankruptcy discharges the debt in your name.

Myth:  If I file for bankruptcy, I might lose my job.

Fact:  Filing for bankruptcy should have no impact on your job. Your employer is not legally allowed to fire you because you've filed for bankruptcy. If you are fired due to your bankruptcy filing, you may be able to sue your employer for damages.

Myth:  If I don't pay off my debts, I could go to jail.

Fact:  Unless your debts are caused because of criminal activities, you won't serve jail time. In general, only debts incurred through criminal activity, such as willful tax evasion, can lead to jail time.

Our firm is committed to providing representation and counsel to individuals who are in financial distress and who need the protection that bankruptcy provides. We encourage anyone who is considering filing for bankruptcy to contact our Los Angeles County Law Firm to discuss the truth about bankruptcy and how it can help.