Bankruptcy can be scary, but it’s not as bad as some people assume and there are plenty of online myths out there about Chapter 7 bankruptcy so lets review the 6 Myths About Personal Bankruptcy.
6 Myths About Personal Bankruptcy
If you’re familiar with these misconceptions, you may make a better situation about your finances.
You can also have a skilled bankruptcy attorney review your case to determine if this could be the right step for your situation.
Bankruptcy Wrecks Your Credit Forever
This myth is a huge reason that thousands of people avoid Chapter 7 bankruptcy when they probably shouldn’t.
Yes, your credit will take a hit when bankruptcy hits your credit report. The mark will likely stay on your report for seven to 10 years.
However, if you get back on track financially and pay your bills on time, the significance of that bankruptcy will fade over time.
And your credit score can recover faster than you think; a Federal Reserve report from 2010 found that the typical credit score of people entering bankruptcy was 538.
But after about eight months, their score was 620 or so.
So, your credit can recover relatively quickly if you are financially responsible after Chapter 7.
Bankruptcy Eliminates All Debt
It will get rid of most debt, but not everything.
A typical Chapter 7 bankruptcy will discharge most unsecured debt, including utility bills, credit card charges, healthcare expenses, back rent, late mortgage payments, and defaulted car loans.
But if you have debt from student loans and tax debts, these cannot be discharged.
You Lose It All
Many people don’t file when they should because they think they’ll walk out of bankruptcy with only the clothes on their backs.
Much of the property in your filing may be exempt, and you may not lose any assets at all, depending on your situation.
The most important things to most of us – your home, clothes, and vehicle – are safe, as long as you’re current on your house or cars.
Depending on your state of residence, creditors cannot touch most or any of the equity in your home either.
But this is a crucial point to check with your attorney for your state.
Even many of the things in your home that have value, creditors don’t want to touch. Most of your electronics, unless they are brand new, aren’t worth bothering over.
And for most bankruptcy filers, your 401k and IRAs are untouchable.
You Lose Nothing
On the other side of the coin, some believe that their attorneys are miracle workers and can protect their clients’ second homes, boats, mansions, etc.
If you have significant assets, you will lose some of them in bankruptcy.
Personal property that isn’t exempted can be acquired by your creditors and sold to pay off debts.
Sometimes, you may hear about a filer who kept his three summer houses in bankruptcy.
But in most cases, they didn’t have full ownership.
You Can Only File Once
Everyone hopes they never have to file, but if they do, it only happens once.
But many people have filed two or three Chapter 7 bankruptcies over their lives.
You are allowed to file for a Chapter 7 bankruptcy once every eight years.
But you shouldn’t file again if you can avoid it; it does hurt your credit for a while, so it’s ideal to consider other options.
Bankruptcy Costs A Fortune
This depends on how complex your case is.
But for the typical Chapter 7 bankruptcy involving personal loans, credit cards, mortgage, car loans, etc., you can get a bankruptcy handled for $1,000 or $2,000.
Some attorneys charge only $500 or $700 for simple cases.
So, declaring bankruptcy isn’t the end of the world.
You can put your financial problems to rest, get a clean slate, and learn to make financial decisions that will improve your personal finances.