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12 myths about bankruptcy

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  • 12 myths about bankruptcy

    12 myths about bankruptcy

    Sometimes, a fresh start makes sense -- if you can get past what you think you know. Here's how bankruptcy affects your credit, your possessions and your karma.

    By Bankrate.com

    Like most big, bad, scary things, bankruptcy has a reputation based on a few tidbits of truth and lots of embellishment. And like most creepy crawlies, it's not nearly as frightening once you know the truth.

    With a mind toward declawing the monster, here are a dozen misconceptions about bankruptcy:

    Everyone will know I've filed for bankruptcy. Unless you're a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors. While it's true that bankruptcy is a public legal proceeding, the numbers of people filing are so massive, very few publications have the space, the manpower or the inclination to run all of them.

    All debts are wiped out in Chapter 7 bankruptcy. You wish. Certain types of debts cannot be erased. They include child support and alimony, student loans and debts incurred as the result of fraud. If you've defrauded someone and a judgment has been made against you, that won't be erased either. Credit card interest
    out of control?

    I'll lose everything I have. This is the misconception that keeps people who really should file for bankruptcy from doing it, says Chris Viale, chief operating officer of Massachusetts-based Cambridge Credit Counseling.

    "They think the government will sell everything they have and they'll have to start over in a cardboard box," Viale says.

    While the bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car (up to a certain value), money in qualified retirement plans, household goods and clothing.

    "For most people, they'll pass through a bankruptcy case and keep everything they have," says John Hargrave, a bankruptcy trustee in New Jersey. If you have a mortgage or a car loan, you can keep those as long as you keep making the payments (like the rest of us).

    I'll never get credit again. Quite the contrary. It won't be long before you're getting credit card offers again. They'll just be from subprime lenders that will charge very high interest rates. "There are innumerable companies that will provide credit to you," says California bankruptcy attorney and trustee Howard Ehrenberg. "I don't advise any of my clients to run out and run up the bills again, but if someone does need an automobile, they can go and will be able to get credit. You don't have to go underground or something to get money."

    However, if you're planning to buy a house or a car, you might want to do that before you file. Those loans will be tough to get, and the higher interest rate on such a large purchase would make a significant impact on your payments. Also, if you have a credit card with a zero balance on the day you file for bankruptcy, you don't have to list it as a creditor since you don't owe any money on it. That means you might be able to keep that card even after the bankruptcy.

    If you're married, both spouses have to file for bankruptcy. Not necessarily. "It's not uncommon for one spouse to have a significant amount of debt in their name only," Hargrave says. However, if spouses have debts they want to discharge that they're both liable for, they should file together. Otherwise, the creditor will simply demand payment for the entire amount from the spouse who didn't file.

    It's really hard to file for bankruptcy. It's really not. You don't even technically need an attorney. However, it's not recommended to go through the procedure without one.

    Only deadbeats file for bankruptcy. Most people file for bankruptcy after a life-changing experience, such as a divorce, the loss of a job or a serious illness. They've struggled to pay their bills for months and just keep falling further behind.

    I don't want to include certain creditors in my filing because it's important to me to pay them back someday and if the debt is discharged, I can't ever repay them. Bless you for even thinking about such a thing. You're no longer obligated to repay them, but you always have that opportunity. If your conscience won't let you sleep nights because you didn't pay your debts, there's nothing in the bankruptcy code that prevents you from doing that once you're back on your feet. But bankruptcy is an all-or-nothing deal, so you have to include all your creditors in the petition.

    Filing for bankruptcy will improve my credit rating because all those debts will be gone. That sounds like an ad for a bankruptcy lawyer trolling for clients. Filing for bankruptcy is the worst 'negative' you can have on your credit report. Unlike other negatives, which stay on your report for seven years, bankruptcy can be there for 10 years.

    You can't get rid of back taxes through bankruptcy. Generally speaking, this is true. However, there is such a thing as tax bankruptcy, says tax educator Eva Rosenberg, known on the Web as Tax Mama. To get a shot at it, you have to file all your returns and the taxes owed need to be at least three years old.

    You can only file for bankruptcy once. The truth is, you can only file for Chapter 7 bankruptcy once every eight years, Hargrave says. (Before the new bankruptcy law passed in 2005, you could file every six years.) For Chapter 13 reorganization, you can file more often than that, but you can't have more than one case open at the same time, he says.

    Of course, that doesn't make it a good idea.

    "Multiple bankruptcies are really bad," Rosenberg says. "Many people get into the habit of once they've done it, it becomes a way of life. This is not good for your karma." Or your credit rating.

    I can max out all my credit cards, file for bankruptcy, and never pay for the things I bought. That's called fraud, and bankruptcy judges can get really cranky about it. The trustee in your case will review all your purchases right before your filing. He knows what to look for.
    *** THIS IS NOT LEGAL ADVICE--ONLY A LAWYER CAN PROVIDE THAT. ***

    My posts represent hours of research on and off the web, these forums, my experience, and my opinions.

  • #2
    Where can I find information on how to file ch 7 if my wife won't file?

    Comment


    • #3
      Its called a divorce lawyer first

      All joking aside, you should try to get your wife to work with you. If not, you can get the information from an attorney by yourself for free. Most attorneys have a prelimary meeting that is free. Its best to get the information from the source!

      I know my wife struggled alot with aggreeing to file bankruptcy. She was afraid of her clients finding out and looking down on her. I had to sit her down and go over the facts with her about our fiancial situation. She was in total agreement about our financial situation, but she worried about what "stigma" filing BK would be. Just do your best to work together with her. However, if you file BK individually, you still have to include her income.

      Good Luck!
      01/17/2009 Filed
      03/03/2009 341 Meeting
      04/14/2009 Confirmation Hearing

      Comment


      • #4
        "I'll never get credit again. Quite the contrary. It won't be long before you're getting credit card offers again. They'll just be from subprime lenders that will charge very high interest rates. "There are innumerable companies that will provide credit to you," says California bankruptcy attorney and trustee Howard Ehrenberg. "I don't advise any of my clients to run out and run up the bills again, but if someone does need an automobile, they can go and will be able to get credit. You don't have to go underground or something to get money.""


        You know, secured cards are the best option for people just out of bankruptcy. Those subprime cards really are ripoffs. When I repair my credit, I used secured cards instead.

        Yes, I still had to give them $200-300 dollars up front, but I will get the money back when I close those credit accounts. The subprime card fees are that high and you never get the money back. Also, my secured cards have lot lower interest rates than the sub prime cards I qualified for, so it was win-win all the way around.
        My name is Jenna Banks. I'm a full time writer who's been through bankruptcy.

        I love answering questions! I write about my bankruptcy experience, and how I repaired my own credit, every Monday and Wednesday on my blog.

        Comment


        • #5
          Your website is down there slick

          Comment


          • #6
            Fantastic website!!!
            Chapter 7 filed 10/21/2008
            341 - 11/26 went smooth NO ASSET
            Took 115 days after 341 - But Finally DISCHARGED 3/25/09

            Comment


            • #7
              There was a public radio broadcast from yesterday (1/29/09) titled "The Bankruptcy Myth" that can be played from the stations on-line page. It was interesting and informative concerning several different factors in bankruptcy. If you would like to listen to it (about 50 min. long), you can copy and past the following link into your browser.

              http://minnesota.publicradio.org/dis...ning1/?refid=0

              Comment


              • #8
                Jenna your blog really helped me with some issues, I am trying to learn how to not spend money and the 3 nono's definitely make sense, I am finding more and more things out..........

                Buy lots of stuff at the dollar tree and the dollar general.

                Don't splurge on spur of the moment stuff.

                Stay home instead of spending that gas money.
                Entered debt settlement in 2006
                Filed bankrupcy in 2008
                Stuck with $2,343 payment in 2009

                Comment


                • #9
                  About the myth that it's really hard to file for bankruptcy? Of course filing isn't hard. It's getting approved that's hard. At least for a Chapter 7...just adding my two cents.

                  Robert G
                  [Active advertising link removed. Against forum rules.]
                  Last edited by AngelinaCat; 02-10-2010, 07:18 PM.

                  Comment


                  • #10
                    I can max out all my credit cards, file for bankruptcy, and never pay for the things I bought. That's called fraud, and bankruptcy judges can get really cranky about it. The trustee in your case will review all your purchases right before your filing. He knows what to look for.


                    I had a friend who did this, maxed out the cards, and then filed, but she waited about six months after maxxing out the cards to file; therefore, it didn't look quite so conspiuous.

                    Comment


                    • #11
                      This was very helpful information

                      Comment


                      • #12
                        Originally posted by anonymuse View Post
                        12 myths about bankruptcy

                        Also, if you have a credit card with a zero balance on the day you file for bankruptcy, you don't have to list it as a creditor since you don't owe any money on it. That means you might be able to keep that card even after the bankruptcy.
                        How does this work? If I am planning to file VERY soon... if I can afford to, should I pay off one card so I can keep it?

                        How does that work? Is it illegal to not list a credit card?

                        Can they check to see if I made a payment on one card but NO others?

                        Comment


                        • #13
                          Originally posted by FilingBK View Post
                          How does this work? If I am planning to file VERY soon... if I can afford to, should I pay off one card so I can keep it?

                          How does that work? Is it illegal to not list a credit card?

                          Can they check to see if I made a payment on one card but NO others?
                          DO NOT pay off a card on the off chance it will survive the BK. 9 times out of 10, the card will be closed anyway.

                          Comment


                          • #14
                            Probably a very stupid question but I'm confused. Does this mean no CC interest will be erased?



                            Originally posted by anonymuse View Post
                            12 myths about bankruptcy

                            All debts are wiped out in Chapter 7 bankruptcy. You wish. Certain types of debts cannot be erased. They include child support and alimony, student loans and debts incurred as the result of fraud. If you've defrauded someone and a judgment has been made against you, that won't be erased either. Credit card interest
                            out of control?

                            Comment


                            • #15
                              I think the biggest myth of all is that bk is the worst thing that can happen to you, I found that not true, it was the best thing that could have happened to me, the alternative to bk would have been much worse, without getting your debt discharged that debt will follow you around for the rest of your life, you will be stuck in quicksand. Now I am free and life could not be sweeter. Also reading a great book that gave me hope and encouragement helped, called Bankruptcy, How To Survive and Prosper, got it on Amazon.com. helped me immensely.

                              Comment

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