Bankruptcy Mythbusters what is Consumer Bankruptcy?

Bankruptcy MythBUSTERS

What is Consumer Bankruptcy?

• The Bankruptcy Code defines “consumer debt” as debt incurred by an individual primarily for a personal, family, or household purpose. 11 U.S.C. § 101(8).
• Not business debt.
• Can be chapter 7, 11, 12, or13
• Chapter 15 is available to individuals but a case under this chapter is not usually referred to as a “consumer case.”

Top 10 Bankruptcy Myths

• Bankruptcy ruins your credit and prevents you from getting a car loan, mortgage loan, credit card, etc. for up to 10 years.
• People can file for bankruptcy as many times as they want.
• Free House! (i.e. You don’t have to pay for your house (or car in bankruptcy.)
• You lose all your stuff: the reverse of the Free House myth.
• The discharge gets you out of all debt.
• You can choose what debts and what assets are in bankruptcy.
• You should buy lots of expensive things and take vacation right before you file since it will all be discharged anyway.
• Bankruptcy fixes your debt problems.

The “Debtors are Deadbeats” Myth

• Medical debt, job loss, family emergencies all can lead to financial problems.
• Couple who owned a car dealership had a son badly burned in a house fire, which led to major financial problems for them and their business.
• Woman who quit job to take care of mother with Alzheimer's.
• Cancer diagnosis for debtor or family member.
• Small business fails and debtor personally guarantees loans.

• Successful people have filed bankruptcy, including
• Henry Ford,
• Walt Disney,
• Donald Trump,
• Burt Reynolds,
• 50 Cent
• Anna Nicole Smith.

The “Bankruptcy is bad for Business AND THE Economy” myth

• “Capitalism without bankruptcy is like Christianity without hell.” This is a quote from Frank Borman, former astronaut and Chairman of Eastern Airlines.
• America’s culture and economy teaches us to take risks and in fact, depends on risk takers to be “job creators.”
• Without consumer bankruptcy, individuals would be saddled with debt for life, be unable to acquire more credit/debt, and, therefore, be unable to participate in the market.