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12 myths about bankruptcy

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  • anonymuse
    started a topic 12 myths about bankruptcy

    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.

  • jeremym51
    replied
    Choosing an expert and experienced lawyer is important. These days, there are various chapter 11 lawyers willing to offer finish administrations. It is best to procure a lawyer who stays sensible and offers brisk answer for your issue.

    Leave a comment:


  • HelenAUre4
    replied
    Re:

    Wow! great information. Most of them believe that bankruptcy is a dead end where there is no returning back. The person who is bankrupt is no longer eligible for a mortgage. Yes, credit scores and previous debt history becomes an important part of evaluation.But if you try you can get back to better credit scores then you would be fine. All you have to do is to frame a great plan and work it out accordingly!I have been once at this dead end once. During those days I felt like my life is no more! I still remember I had nearly 4 mortgages from a single mortgage company (5 Year Mortgage Rate in Calgary). But somehow I climbed up back. And my family was there to support me in all those difficult days. Or else, I would have surely gone to the level of a mental breakdown!Thanks for the detailed explanations. Many of the misunderstandings about bankruptcy would be cleared by now. (But I cleared these misconceptions years back!!! )

    Leave a comment:


  • mabellemurph
    replied
    Thank you for sharing this valuable information about Myths in bankruptcy. I saw also other myths in bankruptcy in other website, but this one is one I like.

    Leave a comment:


  • AdamGarcia
    replied
    The inability to restore your credit is one of the most prevalent myths I've come across. Many prospective clients are under the impression that once they file for bankruptcy they will never get another car loan, mortgage, etc. I have to keep repeating that you will get quite a few credit solicitations post bankruptcy, and that if you are responsible with credit in the future your credit score will rebound, especially if it was low to begin with.

    Leave a comment:


  • botsal
    replied
    .

    Leave a comment:


  • savana
    replied
    All these myths are common amongst those people who are filling it against any organization. Most common myth which always dwells in a mind is "I will loose everything I have" which is not a complete truth. It depends on state to state and Government always keep the property with them. Now there are certain changes that arise but, every person must know all the pros and cons of Bankruptcy.

    Leave a comment:


  • wystanfi
    replied
    I want to know that it is possible to filling bankruptcy without any legal help.

    Leave a comment:


  • bobkerry
    replied
    really awsome and seems to be interesting too. with the help of this we really come to know about the pros and cons related to this topic...with th help of this we can know about all the setails related to this...thanks alot

    Leave a comment:


  • beachchick
    replied
    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.

    Leave a comment:


  • Lupita
    replied
    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?

    Leave a comment:


  • HHM
    replied
    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.

    Leave a comment:


  • FilingBK
    replied
    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?

    Leave a comment:


  • fatjay
    replied
    This was very helpful information

    Leave a comment:


  • jamesd1967
    replied
    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.

    Leave a comment:

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