Common Bankruptcy Misconceptions
There are many assumptions surrounding bankruptcy filing that can lead to you being misinformed. Some of the most common myths include:
- No credit for 7 to 10 years. The notion that bad credit will follow you around for up to a decade after your bankruptcy filing is a fallacy. In fact, you can have good credit in as little as three years despite the fact that it will appear on your credit report for 10 years. In many cases, you may be able to obtain secured or unsecured credit cards within four weeks of your discharge. However, some of the credit card companies might require a deposit. The credit card company that appeared on your bankruptcy filing might also give you a second chance. Accepting their offer will give you a chance to build up your credit score provided that you make frequent, on-time payments. Your credit score is calculated by your financial activities over the last three years. As long as you keep up with your repayments, it will reflect in the form of a good credit score in just three years, not in 7 to 10 years.
- Filing Bankruptcy Means You Will Lose Everything. Bankruptcy laws pertaining to what property you have to surrender when you file bankruptcy vary from state to state. Nonetheless, all states have provisions that will protect specific assets such as your home, a car, a retirement plan, clothing and household goods. These are referred to exemptions. It is advisable to consult with your attorney to determine exactly what assets are exempt in your state.
- All Bankruptcy Options Are Practically The Same. That could not be further from the truth. The most common types of consumer bankruptcy are Chapter 7 and Chapter 13. Under the Chapter 7 code, all of your dischargeable debt is wiped out and you get a fresh start, whereas a Chapter 13 is the reorganization of your debt. The court will consolidate your debt and create a payment plan for anywhere between three to five years. As long as you do not default on the repayment plan, any remaining debt at the end of the term will be discharged. It is best to consult with your attorney on which bankruptcy code is best for you. Also see (Chapter 7 or Chapter 13).
- Filing Bankruptcy Will Wipe Out All Debt. In a perfect world, yes; in the real world, no. Bankruptcy will not eliminate debt incurred by providing incorrect information to a creditor. If you gave out false information in order to obtain a loan, it will not be discharged by the Court. Unfortunately, in most cases, student loans cannot be eliminated. If you can prove to the court that the repayment of your student loan will cause “undue hardship” to you or your dependents. Any outstanding balances on alimony or child support has to be paid. The same applies to some taxes, including school taxes as well as property taxes. Depending on your case, your attorney will be able to advise you as to what debt can and cannot be discharged.
- Only Those Who Are Financially Irresponsible File Bankruptcy. Sometimes life throws you curve balls that are beyond your control. Divorce, identity theft, serious illness, death of a spouse or the loss of your job can create turmoil on your financial situation. By filing bankruptcy, you are merely trying to reclaim control of your finances, which is quite the opposite of being careless.