Bankruptcy Myths Debunked

Bankruptcy is complex and confuses many people. The confusion is increased by the large amount of myths on the internet regarding bankruptcy. Here at Conley Law, we are committed to educating the public regarding bankruptcy. Hopefully this increased education will help people be less afraid and seek the help they need.

Bankruptcy Myth 1: I’m a failure if I file bankruptcy.

Bankruptcy is a tool to use when you need it. Bankruptcy is meant to get you out of a financial hole that you realistically cannot get out of. Bankruptcy protects you from the fire consequences of not addressing your debts, like repossession, foreclosure, and garnishment. Your bankruptcy attorney and trustee don’t judge you for needing to file. We want you to file so you can receive the help you need. You are not a failure for seeking the help that you deserve.

Bankruptcy Myth 2: I’ll lose my property if I file bankruptcy.

Your bankruptcy attorney will apply exemptions to protect your property. In Ohio, bankruptcy attorneys typically use R.C. 2329.66 to protect your property. R.C. 2329.66(A)(1)(b) protects $185,625 in equity per person for real estate that you or your dependent lives at. R.C. 2329.66(A)(2) protects $5,025 in equity per person for a motor vehicle. R.C. 2329.66(A)(10) protects the entire balance of a qualified retirement account. These exemptions periodically get updated, with the most recent update occurring on April 1, 2025. If there is an amount that cannot be protected, it is possible to pay to keep the property.

Bankruptcy Myth 3: Debt settlement is better than bankruptcy.

Many people try debt settlement and other options before filing bankruptcy. These options usually don’t work and put them in a worse situation. The basic concept is that these companies tell you to stop paying your debts and to start sending them money instead. Then these companies will try and settle debts for you.

These companies don’t tell you many things though. This process increases the amount of debt that you owe because your accounts are incurring interest and fees that you would not have had otherwise. Even with a settlement, you often will pay the same or more because of the added interest and fees.

These companies also don’t tell you that your creditors do not have to agree to anything and will still often times sue and garnish you. Many times, these companies will then proceed to offer you a loan to repay your creditors instead, and this way they can charge you insanely high interest rates and fees.

Even when a settlement is reached, these companies charge a large percentage of the forgiven debt, and you will owe taxes on the forgiven debt.

Bankruptcy solves all these issues. Bankruptcy does not increase the amount of debt that you owe, instead it discharges the debt. Even in chapter 13, interest is not typically added to your debt. Bankruptcy protects you from lawsuits and garnishments. Bankruptcy is upfront with you instead of deceiving you.

Bankruptcy Myth 4: Bankruptcy will destroy my credit.

Bankruptcy can negatively impact your credit score, but this impact lessens over time. For many people, bankruptcy improves their credit score. This happens because most people’s credit score is already low when they file bankruptcy, and their outstanding debt is taken care of and not lowering their credit score. Additionally, our Ohio bankruptcy attorney partners with Evergreen for the required courses you must take when you file for bankruptcy. When you complete the required courses through Evergreen, they give you the 7 Steps to a 720 Credit Score for no extra cost. This bonus course educates you on how you can get your credit score as high as 720 in as soon as two years after filing bankruptcy.

The more important aspect to consider is what you can do with your credit after filing for bankruptcy. It’s possible to get a car loan as soon as a day after filing a chapter 7 bankruptcy and after confirmation after filing a chapter 13 bankruptcy. Here at Conley Law, we partner with the First Step Auto Loan Program to get clients into new vehicles. You can also qualify for a mortgage as soon as two years after a chapter 7 bankruptcy, or after twelve on-time payments in a chapter 13 bankruptcy.

Bankruptcy Myth 5: Bankruptcy can’t deal with student loans.

For years people have believed that student loans can’t be discharged in bankruptcy. This was not true, dispute other bankruptcy attorneys stating so. It used to be more difficult to resolve student loans through bankruptcy, but it wasn’t impossible. As of November 2022, it is now easier than ever to discharge student loans through bankruptcy. The US Department of Justice now uses an attestation process to work with the US Department of Education on when to recommend student loan discharges. While it is an additional process, it is possible to discharge student loans now.

Resources

1. https://codes.ohio.gov/ohio-revised-code/section-2329.66
2. https://www.ohsb.uscourts.gov/news/april-1-2025-ohio-exemption-increases
3. https://www.evergreenclass.com/
4. https://www.evergreenclass.com/720course/
5. https://www.kenganleylincoln.com/first-step.htm
6. https://www.justice.gov/ust/student-loan-guidance