Myths and the facts about Bankruptcy:
- MYTH: All debts can be erased by filing bankruptcy
There are certain debts that cannot erased by filing bankruptcy. Child support, alimony, and student loans cannot be wiped clean by filing.
- MYTH: By filing bankruptcy I can keep my car and house without having to pay them off.
No, you can keep the car and the house, but the loans must be repaid. Filing bankruptcy does not wipe clean secured loans.
- MYTH: Filing bankruptcy will give me a clean start on my credit.
Not necessarily, it will wipe clean some debts and give repayment plan for others, but it will leave a negative mark on the credit report. This will lead to possible higher interest rates, lower credit limits and the possibility of not being able to get some credit for awhile. However it is extremely possible to rebuild credit and to get back to having good credit if an individual stays focused and works hard on getting credit and showing creditors they are responsible and can pay the debt and pay on time.
- MYTH: I can file bankruptcy as many times I as would like or as I need too.
No, under law Chapter 7 can only be filed 1 time every 8 years. For filing Chapter 13 a discharge can only be obtained if it has not been obtained within the last 2 years. If you have filed Chapter 7, 11, or 12 you cannot file Chapter 13 within 4 years. And remember the more times bankruptcy is filed that longer it is going to take to rebuild credit!
- MYTH: If I file bankruptcy everyone will know and I will lose everything I have.
This is far from the truth! No one will know you filed bankruptcy unless you tell them!! If you file, you don’t lose anything, while details vary from state to state, there are exemptions that can be filed to protect household goods, vehicles, housing, and IRA’s/ retirement plans just to name a few. Remember that filing bankruptcy does not wipe out liens, so if you want to keep the above mentioned the notes must be repaid.
- MYTH: My credit will be ruined forever if I file bankruptcy.
No, this is not true, while bankruptcy can stay on your credit report for 10 years does not mean it will negatively effect your credit for 10 years. By the time you file bankruptcy you are probably already falling way behind on bills and having creditors calling you. This is already effecting your credit in a negative way and giving you a low credit score. By filing bankruptcy you are wiping the slate clean so to speak and giving you a chance to show creditor you are learning to be responsible. Individuals that file bankruptcy can usually get approved for a secured credit card within 2 years of filing bankruptcy. A secured credit card is a great way to start rebuilding credit and showing creditors that you can be responsible with credit. Studies show that after 2 years of filing bankruptcy an individual can obtain a mortgage with an interest rate comparable to someone who has not filed bankruptcy. So filing bankruptcy is NOT the end of your credit, it just might take a bit of work to gain the trust of creditors!