Bankruptcy Misinformation and Myths: Homeowners, Gig Workers, Freelancers

Some think they’ll lose everything (home, car, retirement accounts), when in reality bankruptcy exemptions protect much of what they own. Others think they’ll “never get credit again,” but credit can start rebuilding within a couple of years.

Homeowners – Fear of Automatically Losing the House

• The Situation:
  A family in Stockton has fallen behind on their mortgage after a layoff and rising costs. They’ve heard from friends, neighbors, or even misinformed financial advisors that “filing bankruptcy means you’ll lose your house.” Terrified, they avoid calling an attorney.
• The Myth:
  People think bankruptcy = liquidation. They don’t realize:
  • Chapter 13 lets you catch up on past-due mortgage payments over 3–5 years while keeping your home.
  • Many states (including California) have generous homestead exemptions that protect equity.
  • Filing stops foreclosure immediately through the automatic stay, often buying critical time.
• The Consequence:
  Because of misinformation, the family waits until the foreclosure is complete. By then, it’s too late — the home is sold at auction, and the family loses both the house and any equity that bankruptcy could have protected.

With accurate information, they could have used Chapter 13 to keep the house, stop foreclosure, and reorganize debts.

Gig Workers / Freelancers – Believing Inconsistent Income Disqualifies Them

• The Situation:
  A freelance designer in Seattle or a rideshare driver in Stockton is overwhelmed by credit card debt and tax liabilities. Because their income fluctuates wildly month-to-month, they assume they “don’t qualify” for bankruptcy.
• The Myth:
  They believe only people with steady W-2 jobs can file. They don’t realize:
  • Bankruptcy law is designed to handle all income types — hourly, seasonal, self-employed, gig work.
  • Chapter 7 looks at your average income against the means test, not whether it’s steady.
  • Chapter 13 repayment plans can be structured around variable income and adjusted if circumstances change.
• The Consequence:
  They avoid filing, instead juggling payday loans, tax debt, or borrowing from family. By the time they finally seek help, the IRS or state tax agency may already have liens or garnishments in place — complications that make resolution harder.

Bankruptcy can wipe out personal debt and even restructure tax obligations, regardless of whether income is “regular.” Both myths create dangerous delays that turn solvable problems into irreversible losses.