Bankruptcy is a way for an individual to discharge his or her debts. However, many people have some serious misconceptions about bankruptcy.
Many people believe that they will lose everything they own. The bankruptcy process allows an individual to protect property with exemptions. Items such as a house, car, personal items, and household items can be protected with exemptions.
Some people believe that tax debts cannot be discharged. If the tax returns due date was three years prior to the bankruptcy petition being filed, the return was actually filed two years prior to the bankruptcy petition being filed, the tax was assessed at least 240 days prior to the bankruptcy petition being filed, and the return was not fraudulent and the debtor is not guilty of tax evasion then the tax debts may be discharged.
A very common perception is that student loans are never dischargeable. While it is harder to discharge student loan, it is not impossible. The Debtor must show “undue hardship”. The factors for undue hardship vary by jurisdiction.
Debt collectors may tell debtors that if they do not pay their debts, they will go to jail. An individual is legally allowed to file bankruptcy. Claims such as these are not only false but illegal under Fair Debt Collections Practices Act as well as a possible violation of state law.
Another misconception is that if you are married you must jointly file for bankruptcy. Many debtors chose to file jointly however, they are not required. If the debts belong to one spouse they may chose to file individually. However, if both parties are jointly liable, one spouse filing for bankruptcy only makes the other spouse completely liable. It is important to note, that even if one spouse decides to file individually, financial information (pay stubs, tax returns, and value of items owned) may still be required to be turned over.