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Bankruptcy

Bankruptcy Myths

Bankruptcy Myths – Don’t believe them!

  • My credit score will be ruined forever.
  • Most people don’t qualify to file bankruptcy under the new law.
  • I won’t be able to qualify for credit after filing bankruptcy.
  • I’ll have to give up all of my property if I file for bankruptcy.
  • Bankruptcy is a difficult and lengthy process.
  • I filed bankruptcy once, so I’m not allowed to do it again.
  • I’m married, and if I file, my spouse must file with me.

 

My credit score will be ruined forever.

Wrong. Your credit will decrease immediately after filing bankruptcy, but many people find that their credit score increases from their pre-filing score in as little as 12 months after bankruptcy. The reason is simple. The debts that were bringing down the credit score are removed in bankruptcy. If the individual is then careful to follow steps to improve their credit, scores can continue to be raised over time.

Most people don’t qualify to file bankruptcy.

Wrong. Although the amendments to the bankruptcy law in 2005 require debtors to pass a means test before being allowed to file for bankruptcy under Chapter 7, most debtors will have income that falls under the means test’s standards. The means test basically prevents people from filing for Chapter 7, but not Chapter 13, if their income is more than the median income level for their state. Most people that are considering filing for bankruptcy are doing so because they can’t pay their bills. Usually the reason they can’t pay their bills is because they don’t make enough money. If they don’t make enough money, the means test is not a problem. In those cases where the means test does prevent one from filing Chapter 7, Chapter 13 will still be an option where the debtor may only have to pay a small percentage of his or her total debt.

I won’t be able to qualify for credit after filing bankruptcy.

Wrong. Actually, you might be flooded with credit card offers almost immediately after you file for bankruptcy. Of course, the offers will likely come with high interest rates and undesirable terms, but the credit will be available. Therefore, assuming you need to buy a car, you will most likely be able to find a lender willing to give you credit.

To be clear, we do not recommend that you go searching for various sources of credit after filing for bankruptcy. Rather, the smart approach is to keep one or two credit cards with low limits, use them every month for small purchases, and pay them off in full at the end of the month. This will help you develop a pattern of credit responsibility and will help increase your credit score.

I’ll have to give up all of my property if I file for bankruptcy.

Wrong. Most people filing for Chapter 7 bankruptcy will find that the majority, if not all, of their property is exempt and they will be able to keep it after bankruptcy. Assuming certain property such as a house or a car is not exempt, the debtor still has a couple of alternatives. The debtor may be able to keep it by filing for Chapter 13 (Chapter 13 requires you to pay back some of your debt, but it may not be as much as you think), or the debtor may keep the property by reaffirming the debt and continue paying on it after bankruptcy. Note that reaffirmation may not be possible in Chapter 7 if the debtor has substantial equity in the asset.

Bankruptcy is a difficult and lengthy process.

Wrong. The difficult aspect of bankruptcy is the completion and filing of all the paperwork, and your attorney will handle this part for you. Otherwise, the process is very short, usually 3 – 6 months, and you most likely won’t be required to go to court. Your attorney will go for you. Other than meeting with your attorney, you’ll only be required to attend a meeting of creditors.

I filed bankruptcy once, so I’m not allowed to do it again.

Maybe. You are only allowed to file for Chapter 7 bankruptcy once every 8 years. You may file for Chapter 13 bankruptcy more often, but you are not allowed to have more than one Chapter 13 case pending at any one time. If you previously filed Chapter 7 bankruptcy, you must wait 4 years before being able to file for Chapter 13.

I’m married, and if I file, my spouse must file with me.

Wrong. There is no requirement that married people must file bankruptcy together, however, depending on your situation, it may be to your benefit. If one spouse has a significant amount of debt that is in his or her name only, then it makes sense to file for bankruptcy alone. However, if there is debt that is held by both spouses, they probably will want to file jointly to prevent the creditors from trying to collect from the non-filing spouse.

Bankruptcy is immoral.

Wrong! Don’t let anyone make you feel bad or in any way self-conscious for considering bankruptcy. Bankruptcy has existed for centuries in many cultures because people have financial troubles and sometimes they need help. Most people face serious financial difficulties at one time or another, and when bills pile up, some individuals have no realistic opportunity to repay the debt. Societies, including our own, recognize this and provide people with a way out. So don’t let anyone criticize you for thinking about bankruptcy.

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