Myths about Bankruptcy:
- MYTH: All debts will be erased
No, there are debts that will not be erased by filing bankruptcy. Child support, student loans, and alimony will still have to be paid under any bankruptcy.
- MYTH: I can keep my car and house without paying them off.
No, the automobile loans and home loans must be repaid. Claiming bankruptcy does not wipe clean secured loans.
- MYTH: It will give me a clean slate on my credit.
Not necessarily. While it eliminates many debts and creates a repayment plan for others, it still leaves a negative mark on your credit report, leading to higher interest rates, lower credit limits, and the potential of not being able to obtain credit for quite some time. It is possible to rebuild credit if you stay focused and work on obtaining and maintaining credit. Reestablishing responsibility and creditability with your creditors is critical to your future success.
- MYTH: I am allowed to file bankruptcy as many times I need to.
No, Chapter 7 can only be filed one time every eight years. With Chapter 13, a discharge can only be obtained if it has not been obtained within the last two years. If you have filed Chapter 7, 11, or 12 you can't file Chapter 13 within four years.
- MYTH: Everyone will know, and I will lose all of my possessions.
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 for the rest of my life.
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!