Bankruptcy Urban Legends

By Keith Rucinski, Akron, OH
Chapter 13 Trustee


“If I file for personal bankruptcy I will lose my car and house, and be left destitute the rest of my life.”

This is one of the most common urban legends about bankruptcy. Filing for bankruptcy does not mean you will lose all your “stuff” and be left destitute. The purpose of bankruptcy is to allow people to get a fresh financial start. Some famous people who have filed bankruptcy to get a fresh start include Harry Truman (33rd President of the United States), Walt Disney, and Henry Ford.

There are two types of consumer bankruptcy, Chapter 7 and Chapter 13.

Chapter 7 is generally used by individuals with low income and few, if any, assets, to protect. In Chapter 7, a Trustee reviews the individual’s assets. If there any assets which can be liquidated, the individual must surrender the asset to the Trustee. The Trustee will sell the asset and distribute the funds to the individual’s creditors. The asset most sold by Trustees is the individual’s automobile. State exemption law may protect the individual’s automobile from liquidation by the Trustee. Generally, an individual completes a Chapter 7 bankruptcy within six months of filing their petition with the bankruptcy court. Most debt is discharged (creditors whose debt is discharged cannot seek further payment from the individual).

Chapter 13 is for individuals who have some type of regular monthly income. Individuals who file Chapter 13 often have fallen behind on their car and house payments, and need time to catch up those payments. Chapter 13 allows individuals up to sixty months to become current on their house and car payments. Individuals come up with their own budget and propose a repayment amount they can afford. The individuals pay funds to a Chapter 13 Trustee who pays the funds to creditors pursuant to bankruptcy court orders. While the individual is making payments to the Trustee, creditors cannot foreclose on the home or repossess the car (creditors need bankruptcy court permission to pursue foreclosure and repossessions). Chapter 13 is for people who want to keep their “stuff”.


A public education project of the National Association of Chapter Thirteen Trustees

© 2021 BFINE

The materials on this website are for general information purposes only and should not be construed as legal advice, legal opinion, or any other advice on any specific facts or circumstances. You should not act or refrain from acting upon this information without seeking professional advice.