There are many misconceptions surrounding the concept of bankruptcy. Filing for bankruptcy is a major decision, and it shouldn’t be taken lightly. That being said, it’s not as scary as some people make it seem.
Many people hesitate to file for bankruptcy because of the negative stigma that has developed over time. It is crucial to understand the facts before filing, so we decided to bust five of the most common myths about bankruptcy and put your mind at ease.
Bankruptcy permanently destroys your credit
Contrary to popular belief, many people do rebuild their credit after filing for bankruptcy. While it can remain on your credit report for seven to ten years, the effect of a bankruptcy on your credit score decreases over time and it will eventually fall off your credit report altogether.
What people don’t realize is bankruptcy can improve your credit score, especially if your credit looks pretty rough before filing. Remember, almost all other items on your credit report can remain for seven years, and your credit score is a calculation related to that seven-year average. The truth is you can start rebuilding your credit almost immediately once you are officially discharged from bankruptcy, and after the initial hit to your credit score when you file, the credit score will thereafter only be calculated based upon after-filing credit. So essentially it’ll be based upon a three-month average, six-month average and so on. So it becomes extremely important what you do with your new credit as it has a more weighty effect.
Filing for bankruptcy is a one-time deal
False. A person can fall into a financial crisis more than once in their life. Depending on when you filed previously, the type of bankruptcy, and the overall circumstances, you can file for bankruptcy more than once.
Still, it is important to understand that multiple bankruptcies within the credit reporting period are more likely to damage your credit. And while filing for a subsequent bankruptcy after a failed bankruptcy is possible and may be successful, it can also be more challenging and you may have to meet a higher burden, and this is why such a decision should be considered very carefully with the assistance of counsel before acting.
Bankruptcy erases all debt
Unfortunately, this one is also false. While filing for bankruptcy can discharge certain debts (car loans still owed following repossession, medical bills, credit card charges, etc.), it does not cancel everything. Child support, alimony, and student loans are examples of debt that cannot be discharged. And depending on the type and age, tax debt may also be excepted. Similarly secured debt, like vehicle loans or mortgages, are not discharged unless you want to surrender the property securing the lien. At the end of the day, filing for Chapter 7 and Chapter 13 can provide a lot of financial relief, but it will not cover every debt you are expected to pay.
Also, be aware of presumptive fraud. Many people believe they can frivolously spend money and max out their credit cards right before filing. If you commit this type of fraud, you could find yourself in even more financial trouble, and those luxury charges could not be discharged after filing.
Filing for bankruptcy is too hard
Bankruptcy laws and forms can seem like a foreign language. They are very technical and precise, and questions are often asked to elicit answers where the purpose of the request for information is not obvious on its face. But filing for bankruptcy can be quite easy with the help of an experienced legal professional. While it is possible to file independently, it can get tricky if you don’t know what you are doing. The paperwork can be cumbersome, and you can unknowingly mess up one of the many components, causing you to start from scratch. Or, as a worst case scenario, you could end up losing property not properly reported and exempted, or make errors in your budget calculations that end up disqualifying you.
With the assistance of a reliable bankruptcy attorney, the process is pretty straightforward. Your attorney will tell you what information to provide and handle processing the paperwork on their end, and they will know the pitfalls to look out for.
Only failures file for bankruptcy
This couldn’t be further from the truth. There are many reasons people file for bankruptcy, and more often than not, these reasons are beyond control. Divorce, medical bills, and job loss can quickly rack up debt and give families no other option.
Filing for bankruptcy doesn’t mean you are a failure or a deadbeat. It means you are taking personal responsibility for your financial situation and using the tools provided by the government. Bankruptcy wasn’t invented to help the people trying to cheat the system – it’s there so hard-working people who have found themselves in a crisis can find financial relief. It’s much more common than you think, and you probably know a lot of people around you who have been through it…it’s just not something people often talk publicly about, despite the benefit of the fresh start.
Get help from a reliable bankruptcy attorney
If you’re considering filing for bankruptcy, it’s important to speak to a bankruptcy lawyer who understands the intricacies of bankruptcy filings. The Bankruptcy team at Mette, Evans & Woodside understands life happens and offers judgment-free guidance. If you would like to schedule a free consultation and discuss your options, call Tracy L. Updike. Tracy has extensive experience with consumer bankruptcy and is passionate about helping clients get back on the right financial path. Call and schedule your consultation today, (717) 896-1317.