Bankruptcy is a serious decision that carries long-term financial consequences. The decision to file should never be made lightly. For good people who have fallen on hard times, however, bankruptcy can be the most responsible move to put the situation behind you and get back on your feet. Yet many people are afraid of filing for bankruptcy. Rumors, half-truths, and misconceptions are rampant. Here are 7 myths about bankruptcy, debunked.
1. It’s impossible to qualify
In 2005, bankruptcy laws changed to include something known as the “means test.” Under this test, you must answer a few financial questions to determine your eligibility to file for Chapter 7 bankruptcy. Although it is another hurdle that must be crossed, the means test is simply designed to weed out fraud and abuse. If you are legitimately drowning under debt, like most bankruptcy filers, you will likely have little trouble passing the test. Some people qualify based on income alone, while others must also demonstrate their monthly expenses. Even if you do not qualify for Chapter 7 bankruptcy, Chapter 13 bankruptcy is open to everyone.
2. Your credit will be shot
It is true that bankruptcy is a serious blemish on your credit report. By the time they make the decision to file, though, most people already have extremely damaged credit. Bankruptcy represents a fresh start. Rather than your credit problems continuing to haunt you, bankruptcy lets you start over. It remains on your record for 10 years, but you will have the opportunity to start rebuilding almost immediately.
Start with the low limit, high interest rate offers that you get shortly after the bankruptcy is finalized, and use them responsibly. Never use more than 30% of your available credit and pay the bill in full each month. Over time, you will begin to get better offers as banks see that you have built a record of responsible usage. Many people are able to buy a car with a moderate interest rate within a year, and a home within two years, of filing. The more time that passes, and the more responsible rebuilding you show, the less the bankruptcy will affect your credit.
3. You will lose your home, car, and personal possessions
Many people picture bankruptcy trustees coming into their homes and confiscating everything they own. It is true that under a Chapter 7 bankruptcy, your non-exempt property can be sold to pay your creditors. However, though the exact limits vary, every state allows bankruptcy filers to keep a certain amount of equity in their home and car, as well as all personal belongings up to a particular dollar limit. There are also Federal Bankruptcy exemptions. Most bankruptcy filers lose nothing. Anything that you purchase after your bankruptcy is finalized is yours to keep.
If you have a lot of luxury possessions or are very far behind on your mortgage or car payments, a Chapter 13 bankruptcy might be a better choice for you. It will not wipe out your debts like a Chapter 7, but it will restructure your payments based on your income and expenses, giving you he opportunity to catch up. You will not lose any of your property in a Chapter 13, as long as you make your required payments. In addition you can usually reduce or even wipe out debts such as credit cards and personal loaqns.
4. Only bad people and deadbeats file for bankruptcy
Bankruptcy used to carry an unfair stigma for many people. Doctors, lawyers, school teachers, police officers, social workers, and many others have had to file for bankruptcy at some point due to situations that were mostly or fully outside of their control. Bankruptcy is a legally honest way to overcome past hardships and set yourself on the path to a better future. The number of people who abuse the system is only a tiny minority.
5. Your entire community will know about your bankruptcy
So many people file for bankruptcy that it simply is not worth most papers’ time. Even if your bankruptcy was to be published, though, how often do you scan a long list of names to see if anyone you know happens to be there? Bankruptcy is a matter of public record, but those without a good reason to go looking will likely never know. Try to remember the last time you saw a newspaper with a list of the name of everyone who had filed for bankruptcy.
6. You will lose your job
Many people worry that their current or future employment will be affected by their bankruptcy. In reality, it is illegal for your current employer, public or private, to take negative action against you. If you are job hunting, some employers do run credit checks, and it is possible that a bankruptcy could be held against you, especially for a private sector job that involves handling money such as a stock broker.. However, it is illegal for federal, state, or local government agencies to discriminate against bankruptcy filers. You might just find your fresh start in government work.
7. You don’t need a lawyer to file for bankruptcy
It is true that a lawyer is not required for bankruptcy filing. However, bankruptcy law is highly complex. Failing to accurately fill out a form or signing something you do not fully understand could result in some debts not being discharged, losing property you meant to exempt, or even having your case thrown out altogether. A good bankruptcy attorney will guide you through every step of the process, ensuring that your rights are protected.
If you are ready to take the first steps toward financial freedom, call the Law Offices of David M. Offen today at (215) 625-9600 to schedule your free initial consultation. We’re here to help you every step of the way.