Bankruptcy is a big decision. There is no denying that each individual or family must consider all the facts when trying to determine if this is the right step for them. Keep in mind, we said facts. All too often, common bankruptcy myths creep into the conversation, masking themselves as truth. That is why our team here at Leonard V. Sominsky, ESQ., PC is here to debunk some of the biggest ones for you! Our goal is to inform you of your options and ensure you know what to expect in bankruptcy.
Read through five of the top bankruptcy myths below!
1. You Can’t Qualify for Loans After Bankruptcy.
Bankruptcy is a red flag for lenders, but that doesn’t mean you won’t be able to ever get a loan again for those years your filing remains on your report. You can qualify for a loan or borrow money long before the 10-year mark if you get to work right away rebuilding your credit. This can be done in baby steps by gradually building your score. Start with a secure card you know you can pay off every month. Use it to make necessary purchases that you know you have the money for, ensuring you aren’t ever late. Avoid getting credit cards with high interest rates, even if it seems like that will help you get back in the game. It will likely only hurt you more in the long run by creating more credit card debt.
2. Bankruptcy Gets Rid of All Your Debt.
Unfortunately, this simply isn’t true. While bankruptcy does help eliminate a vast amount of debt and allows you to keep a majority of your property through exemptions, there are still certain debts you will have to face. Major debts that you will still have to pay off after bankruptcy include child support, alimony, and most student loans. You also cannot discharge legal settlements and certain tax debts. The more you understand about the discharge process, the better you can assess bankruptcy as the right option for your situation. In some cases, debt settlement or negotiation may be better option.
3. If You File, Your Credit Will Be Ruined.
Another popular myth, credit is not permanently ruined when you file for bankruptcy. When you file for bankruptcy correctly and create an effective credit repair plan to follow afterward, you can often see your credit score restored in just a few years. Yes, rebuilding your credit will take work and time, but it is not by any means impossible. You can expect your bankruptcy filing to remain on your credit for around seven years, but that doesn’t prevent you from building it back up over time. Even with your bankruptcy filing on your credit report, you can begin to get offers for credit cards and loans within a short time after the process is finished.
4. Only Financially Irresponsible People File.
As one of the most dangerous myths, this one can hit people at the core. If they believe filing for bankruptcy will make them look financially irresponsible, they may skip the process in favor of preserving their pride. The truth is that anyone could find themselves in a situation where bankruptcy becomes necessary. A majority of filers are faced with unexpected expenses such as medical bills or the loss of a job, putting them in suddenly financially restrictive circumstances. No matter the financial hardships or issues that led to your financial situation, opting to file for bankruptcy does NOT make you financially irresponsible. In fact, taking the step to file bankruptcy can often be more financially responsible than ignoring creditors or continuing to slip further into debt.
5. You Will Lose Your House.
While NOT TRUE, this is a myth that can scare a lot of people away. Individuals may assume that if they file for Chapter 13 or Chapter 7 bankruptcy, they will have to give up all their valuable assets, including their homes. Under the law, there are property exemptions that allow you to keep your home in most cases. While you may have to work out an agreement with a creditor if they have “security interest” in your home, you can trust your bankruptcy lawyer to do everything in their power to prevent foreclosure or repossession of your home. Most cases end with individuals staying in their exempt homes.
If you want to find out what else you should know about bankruptcy, call our firm to get counsel. We can help you through this process.