Frequently Asked Questions

Myth: The IRS wants to take my belongings

Fact: The IRS doesn’t want to take your house, car or jewelry. The IRS prefers to make an agreement with you which will lead to payments toward your tax debt.

Caveat: The IRS will take your bank account and wages, if you ignore its notices.

Myth: There are new IRS programs in which they will settle for pennies on the dollar.

Fact: The IRS program which allows you to settle for less than the full amount owed is called an Offer in Compromise. It is not new, but the IRS does update the rules and procedures from time to time.

Myth: The IRS will call you and threaten to take action against you.

Fact: The IRS will not call you and make threats. Scam artists, pretending to be the IRS, may call you and make threats, with the hope of getting money from you. You should hang up immediately if you get a call like this. Don’t give any personal information.

Myth: I will lose my assets if I file bankruptcy.

Fact: Most people who file bankruptcy lose no assets, for two reasons: The exemption laws protect most or all of our assets in most cases. Secondly, if you would lose assets in a bankruptcy, you may choose not to file bankruptcy.

Myth: My credit will be ruined for 10 years if I file bankruptcy.

Fact: You may begin to reestablish your credit immediately. Your credit may be such that you qualify for a home loan in 2 years or less, and other types of loans even sooner.

Myth: I make too much money to file for bankruptcy.

Fact: Chapter 13 bankruptcy imposes no upper income limits. Chapter 13 bankruptcy may be extremely beneficial to you, even if your income is too high to file a Chapter 7 bankruptcy.

Myth: My employer may fire me if I file bankruptcy.

Fact: Federal law prohibits your employer from terminating you for filing bankruptcy. Anecdotally, I have not had a client lose his or her job, in over 20 years of practicing bankruptcy law.

Myth: I may not file bankruptcy unless my spouse also files bankruptcy.

Fact: You may file bankruptcy without your spouse. Community property and your spouse’s income, however, are relevant to your filing.

Myth: IRS taxes are never wiped out in bankruptcy.

Fact: Federal income taxes may be discharged in bankruptcy, if several conditions are met. Two such conditions are how old the tax year is, and whether the tax return was filed on time.

Myth: Payday loans are not wiped out in bankruptcy.

Fact: Payday loans are routinely wiped out, or discharged, in bankruptcy.

Myth: I will be prosecuted for writing hot checks that I gave the payday lender in advance.

Fact: The payday lender knew the funds were not available when you gave them the check. Therefore, they are not hot checks.

Myth: I can’t buy a car while I am in Chapter 13 bankruptcy.

Fact: If you need a car, and you can afford a payment, then your Chapter 13 trustee will normally give you permission to purchase a car.

Myth: I can’t contribute to my 401(k) plan, or save for retirement, while I am in a Chapter 13 bankruptcy.

Fact: You may generally continue to contribute money toward your retirement plans in the same manner as before you filed bankruptcy.

Myth: I will be kicked out of Chapter 13 bankruptcy if my income decreases.

Fact: You will have several options if you are in a Chapter 13 and your income decreases. You may modify your bankruptcy plan, if feasible, convert your case to Chapter 7, apply for a hardship discharge, or voluntarily dismiss your case.

Myth: I will have to close my bank accounts if I file bankruptcy.

Fact: You may keep your bank accounts open after filing for bankruptcy.

Myth: I can pick and choose the debts to include in bankruptcy.

Fact: You must list all debts in your bankruptcy schedules.

Myth: I can only file bankruptcy once every 8 years.

Fact: You must wait 8 years between Chapter 7 bankruptcy filings, but you may generally file a Chapter 13 bankruptcy anytime. You may or may not be eligible for a Chapter 13 discharge, depending on your history of prior case filings.

Myth: I must live here for 2 years before I may file a bankruptcy case.

Fact: You must live here for the greater part of 180 days, or usually 91 days, for this to be the proper place to file bankruptcy.

Myth: I must have no money and no job to be bad off enough to file for bankruptcy.

Fact: Most people who file for bankruptcy have jobs, and many assets.

Myth: I should pay off the credit cards I want to keep before I file bankruptcy.

Fact: You should not pay off creditors just before filing bankruptcy. The bankruptcy trustee may be able to recover recent payments to your creditors. Also, the creditor may cancel your credit card when you file bankruptcy, even if you have paid it off.

Myth: A room full of creditors will be waiting to question me when I go to the Meeting of Creditors.

Fact: Creditors are notified of the Meeting of Creditors, but usually do not attend, because they do not have to attend to preserve any rights they have.

Myth: Bankruptcy is a humiliating process, and I will be looked down upon.

Fact: The bankruptcy trustees, the judges and their staffs, and the U.S. Trustee’s office are professional and courteous, and will treat you with respect, as long as you are honest, forthcoming, and act in good faith in presenting your bankruptcy case.

Myth: My creditors may only attempt to collect for seven years.

Fact:  Creditors may attempt to collect from you forever.  There are time limits for bringing a lawsuit against you, and for reporting debts to the credit bureaus, but not for asking you to pay.