Sometimes, a fresh start makes sense -- if you can get past what you think
you know. Here's how bankruptcy affects your credit, your possessions and
your karma.

Like most big, bad, scary things, bankruptcy has a reputation based on a few
tidbits of truth and lots of embellishment. And like most creepy crawlies,
it's not nearly as frightening once you know the truth.

With a mind toward declawing the monster, here are a dozen misconceptions
about bankruptcy:

Everyone will know I've filed for bankruptcy. Unless you're a prominent
person or a major corporation and the filing is picked up by the media, the
chances are very good that the only people who will know about a filing are
your creditors. While it's true that bankruptcy is a public legal
proceeding, the numbers of people filing are so massive, very few
publications have the space, the manpower or the inclination to run all of

All debts are wiped out in Chapter 7 bankruptcy. You wish. Certain types of
debts cannot be erased. They include child support and alimony, student
loans and debts incurred as the result of fraud. If you've defrauded someone
and a judgment has been made against you, that won't be erased either.

I'll lose everything I have. This is the misconception that keeps people who
really should file for bankruptcy from doing it, says Chris Viale, chief
operating officer of Massachusetts-based Cambridge Credit Counseling.

"They think the government will sell everything they have and they'll have
to start over in a cardboard box," Viale says.

While the bankruptcy laws vary from state to state, every state has
exemptions that protect certain kinds of assets, such as your house, your
car (up to a certain value), money in qualified retirement plans, household
goods and clothing.

"For most people, they'll pass through a bankruptcy case and keep everything
they have," says John Hargrave, a bankruptcy trustee in New Jersey. If you
have a mortgage or a car loan, you can keep those as long as you keep making
the payments (like the rest of us).

I'll never get credit again. Quite the contrary. It won't be long before
you're getting credit card offers again. They'll just be from subprime
lenders that will charge very high interest rates. "There are innumerable
companies that will provide credit to you," says California bankruptcy
attorney and trustee Howard Ehrenberg. "I don't advise any of my clients to
run out and run up the bills again, but if someone does need an automobile,
they can go and will be able to get credit. You don't have to go underground
or something to get money."

However, if you're planning to buy a house or a car, you might want to do
that before you file. Those loans will be tough to get, and the higher
interest rate on such a large purchase would make a significant impact on
your payments. Also, if you have a credit card with a zero balance on the
day you file for bankruptcy, you don't have to list it as a creditor since
you don't owe any money on it. That means you might be able to keep that
card even after the bankruptcy.

If you're married, both spouses have to file for bankruptcy. Not
necessarily. "It's not uncommon for one spouse to have a significant amount
of debt in their name only," Hargrave says. However, if spouses have debts
they want to discharge that they're both liable for, they should file
together. Otherwise, the creditor will simply demand payment for the entire
amount from the spouse who didn't file.

It's really hard to file for bankruptcy. It's really not. You don't even
technically need an attorney. However, it's not recommended to go through
the procedure without one.

Only deadbeats file for bankruptcy. Most people file for bankruptcy after a
life-changing experience, such as a divorce, the loss of a job or a serious
illness. They've struggled to pay their bills for months and just keep
falling further behind.

I don't want to include certain creditors in my filing because it's
important to me to pay them back someday and if the debt is discharged, I
can't ever repay them. Bless you for even thinking about such a thing.
You're no longer obligated to repay them, but you always have that
opportunity. If your conscience won't let you sleep nights because you
didn't pay your debts, there's nothing in the bankruptcy code that prevents
you from doing that once you're back on your feet. But bankruptcy is an
all-or-nothing deal, so you have to include all your creditors in the

Filing for bankruptcy will improve my credit rating because all those debts
will be gone. That sounds like an ad for a bankruptcy lawyer trolling for
clients. Filing for bankruptcy is the worst 'negative' you can have on your
credit report. Unlike other negatives, which stay on your report for seven
years, bankruptcy can be there for 10 years.

You can't get rid of back taxes through bankruptcy. Generally speaking, this
is true. However, there is such a thing as tax bankruptcy, says tax educator
Eva Rosenberg, known on the Web as Tax Mama. To get a shot at it, you have
to file all your returns and the taxes owed need to be at least three years

You can only file for bankruptcy once. The truth is, you can only file for
Chapter 7 bankruptcy once every eight years, Hargrave says. (Before the new
bankruptcy law passed in 2005, you could file every six years.) For Chapter
13 reorganization, you can file more often than that, but you can't have
more than one case open at the same time, he says.

Of course, that doesn't make it a good idea.

"Multiple bankruptcies are really bad," Rosenberg says. "Many people get
into the habit of once they've done it, it becomes a way of life. This is
not good for your karma." Or your credit rating.

I can max out all my credit cards, file for bankruptcy, and never pay for
the things I bought. That's called fraud, and bankruptcy judges can get
really cranky about it. The trustee in your case will review all your
purchases right before your filing. He knows what to look for.