Common bankruptcy myths, corrected

Each myth below links to the full answer elsewhere in the Library.

“They’ll take everything I own.” The most damaging myth, because it keeps people paying untouchable debts with grocery money. Exemptions protect the ordinary contents of an ordinary life, and the great majority of Chapter 7 cases are no-asset cases: the trustee takes nothing. Nobody comes to the house. See What are exemptions?

“I’ll lose my 401(k).” Retirement accounts are the best-protected asset class in the system; employer plans aren’t even part of the case. The genuinely tragic version of this myth is the person who cashes out retirement to pay dischargeable cards, then files anyway. See What happens to my 401(k), IRA, or pension?

“Chapter 13 means paying back everything.” Plans pay what your budget shows you can afford; many pay unsecured creditors a small fraction, and the rest is discharged. See How Chapter 13 works.

“My credit is destroyed for ten years.” The entry can be reported that long; the damage doesn’t work that way. Scores typically start recovering within a year or two, because the discharge stops the active bleeding. See How long does bankruptcy stay on my credit report?

“Everyone will know.” No announcement, no notification to employers (beyond ending a garnishment), no list at the courthouse door. The audience is your creditors, who already knew. See Is bankruptcy public?

“I make too much / I already filed once, so I can’t file.” Above-median income means a longer form, not a locked door, and prior filings start waiting clocks, not lifetime bans. See What is the means test? and How often can you file?

“I’ll go in front of a judge and be interrogated.” The one appearance is a roughly five-minute meeting with a trustee; judges are legally barred from attending it. See What is a 341 meeting?

“There’s a trick to keep the house and stop paying for it.” There is no free house and no free car; bankruptcy erases promises, not liens. What it can do for a house in trouble is real and covered honestly in How Chapter 13 saves a house: curing mortgage arrears.

“Filing means I failed.” The bankruptcy power is in the Constitution, the customers are overwhelmingly ordinary households hit by illness, job loss, and divorce, and the people who judge filers most harshly have generally never read a medical bill. Using a legal tool for its intended purpose is called planning.

If one of these myths has been running your decisions, start with its full article, and then let the Checkup look at your actual numbers instead of the folklore.