People considering bankruptcy often think they will lose everything (home, car, retirement accounts), when in reality bankruptcy exemptions usually protect much of what they own. Others think they will never get credit again or their credit will be negatively affected but in reality bankruptcy can give them a fresh start and then they can start rebuilding credit over the next few years.
Homeowners – Fear of Losing the House
- The Situation:
A family has fallen behind on their mortgage after a layoff and rising costs of living. They have heard from friends, neighbors, or even misinformed professionals that “filing bankruptcy means you will lose your house.” Terrified, they avoid calling a attorney. - The Myth:
People think bankruptcy = liquidation or loss of assets. People do not realize:- Chapter 13 lets you catch up on past-due mortgage payments over 3–5 years while keeping your home or gives you breathing room to get it listed and sold in an orderly manner.
- California has a relatively generous homestead exemption (up to approximately $750,000) that protects most equity.
- Bankruptcy 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. Alternatively, some quickly sell their houses to unscrupulous real estate buyers for a large discount from market value.
Gig Workers / Freelancers/ ride share workers – Believe Inconsistent Income Disqualifies Them
- The Situation:
A freelance designer in San Jose or a rideshare driver in San Francisco is overwhelmed by credit card debt and tax liabilities. Their income fluctuates wildly month-to-month and they do not get a regular paycheck. They assume they “don’t qualify” for bankruptcy. - The Myth:
They believe only people with steady W-2 jobs can file. They do not realize:- Bankruptcy law is designed to handle all income types — hourly, seasonal, self-employed, gig work.
- Chapter 7 looks at your average combined income over the last six months, whether steady or not.
- Chapter 13 repayment plans can be structured around variable/seasonal income and adjusted if circumstances change.
- The Consequence:
People avoid filing bankruptcy but instead juggle payday loans, tax debts, and end up borrowing from family or taking on even more debt. By the time they finally seek help, the IRS or the FTB may already have liens or garnishments in place — complications that make a future resolution harder.
Bankruptcy can be a useful tool to deal with your financial situation. Myths create dangerous delays that turn solvable problems into irreversible losses. Call David A. Arietta at (925) 472-8000 for a review of your situation. He is a certified specialist in bankruptcy law with over 30 years of experience.