Bankruptcy Urban Legends

In my over 16 years of practicing bankruptcy law I have heard a lot of misconceptions about bankruptcy.
Some of these are perfectly understandable. In fact, I guess all of them are, or else I wouldn’t be able to explain them here.

MYTH: Bankruptcy Court will be like criminal court, with hostile adversaries lining up to cross-examine me.
TRUTH: Definitely not.

Firstly, most of our clients never see the inside of the bankruptcy court, unless they need to do a reaffirmation (we’ll explain what that is later.) There is a “first meeting of creditors”, or so it says on the official notice from the Court. You might think that means there (1) WILL be more than one meeting and (2) creditors will actually be there. It’s rare for this meeting to not conclude at its “first” session.

Creditors almost never bother to show up.
Yes, they have a right to be there. But the meeting is not an interrogation. Your trustee probably just wants to get through the boring cases (like yours is, like most are) and get to the rare cases where they might actually find something interesting.

MYTH: We might picture bankruptcy court like criminal court as we see on TV.
TRUTH: Most “341(a)”meetings take two to five minutes in front of the trustee. The trustee will ask you questions about your paperwork; is this true, is that correct? Then unless you have an exceptional case or owe millions of dollars it will be over.

MYTH: The creditors will harass you while you are in bankruptcy.
TRUTH: Just the opposite is true. Creditors are banned from bothering you while your bankruptcy case is pending. They can be fined if they misbehave.

MYTH: My name will be listed in the local newspaper as I filed bankruptcy.
TRUTH: Not so. Your name can be found if someone wants to put much work into it, but usually financial institutions and credit reporting agencies only access that data.

MYTH: I’ll have to wait seven years before I can buy a home.
TRUTH: You can get Fannie Mae and Freddie Mac loan four years after the case closes, and you can also get VA and FHA loan after only two years!

MYTH: I won’t be able to get a credit card for seven years.
TRUTH: I’ve had clients get new credit cards the month they got their final discharge. The credit card companies know that for the next few years at the very least you are a solid risk. You’ve freed up cash flow and you’re likely to be careful borrowing.

MYTH: It will be harder to get an apartment.
TRUTH: It will still be harder to get an apartment than if you hadn’t filed bankruptcy. But due to the recession, landlords have had to drastically rethink their policies, and have loosened them significantly from even just a few years ago.

MYTH: Can I go to jail for my debts?
TRUTH: Debtors’ Prison was long ago banished. The only debt that poses a threat of getting anyone thrown in jail in this country is non-payment of court-ordered support.