Arizona Bankruptcy Myths: Do Not Let Assumptions Stop You
From Learning About Your Options In Bankruptcy
By Thomas Cesta – Mesa Bankruptcy Attorney
Bankruptcy sounds so much worse than it is. Consumers fear it, some to the point of financial
ruin. Businesses on the other hand see it for what it really is a financial tool to get back on
track. The following are 10 of the most common bankruptcy myths that I have heard from my
I will lose everything if I file for bankruptcy. Fact: Every state has exemptions or uses the federal
exemptions. These exemptions are fairly realistic and most of your stuff will be protected. In
most cases you will be able to keep your car, your household goods, even most savings can be
protected prior to filing. Anything that is not protected you probably already sold to make ends
meet. And if you didn’t sell it yet, you still can prior to filing for bankruptcy to use for fees, or to
spend on something exempt. Your bankruptcy attorney can help you decide how to cover your
assets. [Only an attorney can advise you on your exemptions. If you prepare your case on your
own, or use a document preparer, you may lose more from missed exemptions, or by not
properly protecting assets, than an attorney would have cost you. This is penny-wise, but
pound-foolish, as they say.]
Bankruptcy will hurt my credit. Fact: Your credit is usually already bad because of late
payments, high balances, charged-off accounts, collections accounts a foreclosure, or
repossession, etc. However, the average consumer that files bankruptcy will see their post-
petition credit score increase 100 or more points in one year or less after the bankruptcy
discharge. And with good management, you could be back in the 700s in two years.
If I file for bankruptcy I will not be able to buy a home or car for 10 years. Fact: As long as your
credit score is at least 620, you will qualify for an FHA loan 2 years after your discharge. And as
far as the car, some lenders will even attempt to get you to buy a car while the bankruptcy is
still pending, if it is a Chapter 7 bankruptcy. True, the loans at the outset will have a higher
interest rate, but you can usually refinance these in about a year. Or, you can wait. In only
about a year after the discharge you can get a loan with an interest rate at least comparable to
what you would have gotten before filing, maybe better. [FHA has other limitations on loans
that do not relate to the bankruptcy. This article does not purport to identify all of the FHA
No one will give me a credit card again. Fact: Most bankruptcy petitioners get credit card offers
within weeks of filing for bankruptcy protection. Think of it this way: when you get the
discharge, you will not be able to file a Chapter 7 bankruptcy for 8 years, or Chapter 13 for 4
years. So if you default on the credit card, they can sue you and then garnish your wages, and
probably get everything you owed them before you can file another bankruptcy. In short, you
are a better risk than someone who has not filed. But because you want to build your credit,
you are likely willing to accept a higher interest rate, and maybe annual fees. So the credit card
company is happy to lend to you, and they are hoping you will pay late so that they can start
charging you even more.
Only bad people do not pay their bills. Fact: Abraham Lincoln filed for bankruptcy. Google
Famous People and Bankruptcy sometimes many good people have found themselves unable
to repay a debt, often because of a change in finances, or because of something the bank did to
make it more difficult. Some of your Heroes may well be on that list. Most people who apply for
bankruptcy protection are simply drowning in debt. Most will never need to file bankruptcy
again. For them, it is a choice between maximizing the banks bottom line, and providing for
their family. Bankruptcy is the solution they need.
I caused the problem, not the bank. Fact: Most consumers blame themselves for having
financial difficulty, and most feel that they owe the companies that took a chance on them and
lent them money. However, credit card companies, banks and other financial institutions do
not have your best interest at heart. They are in it for the money. Your difficulties maximize
their profits. Most consumers do not have a degree in finance. The banks exploit this. Banking
policies and procedures are set by people who do have graduate level degrees in finance in
order to maximize profit. For example, due dates are seldom the same day each month, which
makes it harder to schedule the payment and results in more frequent late payments, and late
fees. It is not an even playing field. It is a bit like playing poker where you only see your cards,
but the other player gets to see your cards and theirs.
Banks only lend to people who can easily afford to pay back the loan. Fact: Most of us believe
that a company will not lend us money unless we can afford to repay it. The truth is, the more
difficult it is for us to repay the loan, the more money the companies will make from lending to
us. It actually makes perfect sense that banks make more money on people who have difficulty
repaying the loan. When money is already tight you are more likely to make a late payment.
When you are late, the bank charges late fees, and they raise the interest rate, often by double
or triple, and they lower the credit limit and then charge over-the-limit fees. They justify this by
saying you have proven to be a bad risk so decreased credit limit and the increased interest rate
protects them. But in fact the increase in interest rate just makes the loan harder to repay, and
makes the minimum payment higher. This means more late payments and more bank profits.
Bankruptcy is bad for the country. Fact: Bankruptcy and Consumer Debt are neither good nor
bad. Consumers with debt make banks rich, but the consumers cannot afford to buy new
clothes and other consumables. Consumers who get a bankruptcy discharge are often able to
afford to spend money with local companies: and local companies need to sell product in order
to continue to retain employees. These consumers can also better afford to send their kids to
college, which means higher incomes for the kids, and more money to spend in the economy.
Bankruptcy will hurt the banks. Fact: Because most people struggle to pay their debts for 5
years or more before considering bankruptcy, most banks will have already recovered all of the
principal owed, plus interest, before a bankruptcy is ever filed. The bank will make less profit
from you, but the bank will also benefit from the tax write-off when you file.
Bankruptcy is immoral. Each consumer should seek their own guidance on this one. Let’s face it,
attorneys are not often thought of as a source for moral guidance. However, the bible and the
Koran both instruct on debt forgiveness.
Consult a bankruptcy lawyer in Mesa Arizona to find out if bankruptcy is right for you.
Bankruptcy is an important decision, not to be taken lightly. However, many people have
opinions about bankruptcy which are just not valid. Before you dismiss bankruptcy as a bad
decision, you owe it to yourself to meet with a Mesa bankruptcy attorney to discuss the pros
and cons of filing. You may find it to be the best decision you ever made.
The Law Offices of Fife & Cesta, PLC
1811 S. Alma School Rd, Ste 270
Mesa, AZ 85210
Office: (480) 850-6541
Re-Posted from: http://www.avvo.com/legal-guides/ugc/bankruptcy-myths-do-not-let-