Common Misconceptions About Bankruptcy Debts

Bankruptcy can feel overwhelming, especially with the many myths and misunderstandings that surround it. At Rounds & Sutter, LLP, we help clients in Oxnard, Camarillo, and Southern California navigate the complexities of bankruptcy while clarifying common misconceptions. Understanding the realities of bankruptcy debts can ease anxiety and empower individuals to make informed financial decisions. Below, our Ventura County bankruptcy lawyers address some of the most common myths and misconceptions.

Student Loans Can’t Be Discharged

One of the most pervasive myths is that student loans are not dischargeable. While it is true that student loans are more difficult to discharge than other debts, they can be wiped out in bankruptcy under certain circumstances. A debtor must demonstrate “undue hardship” to the bankruptcy court, which typically involves proving that repaying the loans would impose severe and long-term financial difficulty. Factors considered include your income, expenses, and ability to maintain a minimal standard of living. While challenging, discharge of student loans is possible, and an experienced bankruptcy attorney can help assess whether your situation meets the legal criteria.

Tax Debts Are Not Dischargeable

Many people assume that filing for bankruptcy doesn’t relieve them of tax obligations. While certain taxes are generally non-dischargeable, others can be eliminated. For example, federal income taxes that are over three years old and meet certain conditions may qualify for discharge. Property taxes may also be discharged under certain conditions. Importantly, an attorney can help determine which tax obligations can be included in your bankruptcy petition, potentially reducing your overall debt burden significantly.

Bankruptcy Protects Co-Signers

Another common misconception is that filing for bankruptcy automatically shields co-signers from liability. This is not the case. While your personal debts may be discharged, co-signers remain legally responsible unless they file separately or make arrangements with creditors. For instance, if you co-signed a loan for a family member, your bankruptcy filing would not eliminate the debt for the co-signer. Understanding the potential impact on others connected to your debts is essential, and a knowledgeable attorney can help guide communication and planning with co-signers to minimize risk.

Filing for Bankruptcy Doesn’t Stop Lawful Debt Collection

Many people underestimate the importance of the automatic stay, a core feature of bankruptcy law. The automatic stay goes into effect immediately when you file for bankruptcy, halting most collection actions against you. This includes lawsuits, wage garnishments, bank levies, and phone calls from creditors. The automatic stay provides breathing room to assess your financial situation and plan your next steps without the constant pressure of creditor actions. While there are exceptions, such as certain tax collection activities or domestic support obligations, the automatic stay remains one of the most powerful tools for protecting debtors and providing immediate relief. Creditors who want to continue debt collection must apply to the court for relief from the stay before resuming collections.

Additional Common Misunderstandings

Several other myths can add unnecessary stress for those considering bankruptcy:

• Bankruptcy wipes out all debt: Not all debts are dischargeable, such as child support, alimony, and certain recent taxes.
• Filing bankruptcy ruins your credit forever: While bankruptcy affects your credit, many individuals see improvements within a year when they manage finances responsibly afterward. Bankruptcies also fall off your credit report after seven or ten years, depending on whether you filed Chapter 7 or Chapter 13.
• You must be destitute to file: Bankruptcy is available to anyone with overwhelming debt relative to their income, not just those who are completely broke.

How an Attorney Can Help

Bankruptcy law is complex, and myths or misunderstandings can lead to anxiety and poor decisions. Working with an experienced bankruptcy attorney ensures that you understand which debts can be discharged, how the process works, and what protections are available to you. At Rounds & Sutter, LLP, we provide personalized guidance, helping clients make informed decisions and maximize the benefits of bankruptcy while avoiding pitfalls.

Contact Rounds & Sutter in Oxnard Today

Dispelling myths about bankruptcy debts is essential to reducing fear and confusion. Understanding the realities about student loans, taxes, co-signers, and the automatic stay empowers individuals to take control of their financial future. If you are considering bankruptcy in Oxnard or elsewhere in Ventura County, contact a knowledgeable attorney at Rounds & Sutter, LLP, to help you navigate the process with confidence and clarity.