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Bankruptcy Myths
Most Americans know very little about bankruptcy. Even though many know of bankruptcy''s ability
to dissolve debt and give the debtor a clean start. Some of the information you have heard is probably correct and some is not. The purpose of my article is to dispell some of the common bankruptcy myths.
1. Even if I file for bankruptcy creditors will still harass me and my family.
This is totally false. Bankruptcy law gives you automatic relief. As soon as you file for bankruptcy a hold is put on all your outstanding debts and any creditors attemps to collect on those debts. The law prevents a creditor from attempting to collect, or even contact the debtor. If a creditor does continue to contact the debtor, the debtor may have grounds to collect punitive damages. Punitive damages are meant as a way to punish the creditor for not adhearing to the procedures set out in the bankruptcy codes. An attorney will tell you all your rights and help in a situation like this. Basically once you file for bankruptcy a creditor must leave you alone or suffer the consequences.
2. I can only file for bankruptcy once in a lifetime.
False again. Filing now has nothing to do with your future ability or needing to file in the future. The bankruptcy laws allow a person to file more then once. The filing may be handled thru the courts alittle differently as far as your discharges go but that is upto the courts to decide.
3. If I file for bankruptcy I will never get credit again.
False. If this was true either nobody would file a bankruptcy or no one would have credit. Several bank offer credit on a secured basis to potentially risky customers so that they can start rebuilding their credit. As a debtor proves his/her ability to repay, credit limits will rise higher. And soon you will be able to apply for an unsecured credit card. As soon as two years after filing a chapter 7 bankruptcy, you can be eligible for mortgage loans on the same terms as someone who has never filed a bankruptcy. Creditor are looking for stability. Which in time you can earn.
4. If I file bankruptcy the courts will seize all of my assets and sell them to pay off my creditors.
False again. While it is the duty of the trustee to seize assests from the estate, there are things that they can''t take. The type of bankruptcy does make a difference. Chapter 13 is a re-organization of your debts. You keep the majority of your assets and work out a payment plan thats acceptable to you and the creditor. A chapter 7 you still keep most of your assets, these are called non-exempt assets. Such as your house, car, clothing, furnishings, life insurance, ectera. Again your attorney will help you with this process.You will retain much more then most people think.
5. If I file for bankruptcy it will cause more family problems then before and probably a divorce. This is also false. You need to understand that there are two kinds of bankruptcy. Voluntary and unvoluntary. Voluntarily you as a family decide the way you need to handle your bankruptcy, and most probably will work things out. Unvoluntarily is when you are forced into it thru your creditors which can cause alot of unrest and undo stress on your marriage and family. It still doesn''t mean that filing a bankruptcy will automatically cause a divorce.
Now that you are more informed you can decide how best to handle your financial situation, or maybe help someone you know that has been mis-informed.
Published: April 11, 2007