There are a lot of bankruptcy myths floating around including the idea that those who file are irresponsible, that all past debts will be discharged and that bankruptcy will permanently ruin your credit. The truth is, debt problems cross all economic boundaries and not every debt will necessarily be forgiven and your credit will be only temporarily besmirched.
One fact that isn’t a myth is that it will cost you to go through a bankruptcy, in both time and money and should never be entered into lightly. The process is not always difficult, but is time consuming and may require investigative work to obtain all the necessary paperwork. Whether you file for Chapter 7 or 13 bankruptcies, the process is intended to help lift the burden of debt so that you can start fresh. Chapter 7 is a way to liquidate assets to cash so that creditors might be paid so those debts may be discharged, regardless if they’re paid in full or not. Chapter 13, is a way to reorganize one’s current situation in order create a plan to pay off their debt over the course of three to five years.
Assess the benefits of a bankruptcy to make sure it will exceed the eventual hit your credit score will take. A dinged credit score will make it harder to obtain loans and credit in the future, so be sure it’s worth the trouble to file. There are some positive outcomes from bankruptcy that can be expected, which include:
- Creditors cease attempts to collect some past due balances.
- Defaulted accounts may be wiped clean from your debt.
- No more worries about paying back some debt accounts.
Difficulties that May Arise
While there are a number of anecdotes about how filing for bankruptcy is a simple process, there are just as many stories of filing attempts that were disastrously stressful and required multiple submissions. With no guarantee of final court approval, if you elect to file for bankruptcy, be warned of the potential difficulties and cost.
Once your bankruptcy has been approved through court, the ruling may not immediately appear on your credit reports and all of your debts may not be discharged immediately. This may cause a problem if you have an excellent job history, an otherwise good credit record and are looking to obtain a line of credit. If the date of your discharge changes or some of your past debts remain after the final ruling, you may have difficulty obtaining credit until the discharge is completed.
A dreaded effect of a bankruptcy is the devastating impact on your credit reports that remain for seven years. An ironic effect is that creditors will have a more positive view of you, once a bankruptcy is discharged because they know you cannot file again for six years.
Future Credit Needs
Many people are naïve about the serious impact bankruptcy has on their future credit needs. It’s not simply a matter of being rejected for a credit card but it will impact your ability to get a mortgage, a loan for a car or household appliances and even securing some jobs. Banks, insurance companies and some employers run credit checks before agreeing to partner with an individual as a way of protecting their investment. Demonstrating poor life management skills can decimate your future as surely as a hurricane will destroy a coastline.
Cost of Filing
Another misconception is that the legal system will forego payment when you’re financially underwater. That’s the paradox of filing for bankruptcy. You’re filing because you can’t afford to pay your bills but to file you’ll need to pay out potentially thousands of dollars. It costs about $300 to file a Chapter 7 bankruptcy. You could go it alone, collecting all the necessary paperwork, filing with the court and then being your own advocate in front of a judge. The reality is, hiring an attorney is easier, less stressful and a wise decision. Consultations are often free and lawyer fees are generally in the range of $1,500 and $2,000.
Filing Petitions and List of Creditors
– Another factor that makes hiring an attorney a wise decision is when it comes to listing your creditors and filing schedules and petitions. One omitted creditor can spell disaster in front of a judge. Timely filing of certificates, schedules or petitions can result in dismissal of the bankruptcy action. A competent attorney will know how to compile a complete, accurate list with less chance of omission or error.
The woeful sob stories of people who lost everything to bankruptcy are a myth, at least in view of today’s legal system. The law has in place exemptions that prevent that from happening. Depending on the state in which you live, these protections may secure your home and a percentage of your assets. Because of the delicate nature of property laws, federal and state exemptions, a bankruptcy lawyer provides your best chance to untangle the web of legalese and help you maintain those things that you require to start over.
The final word is a clear warning to learn about the benefits and the pitfalls of bankruptcy before filing. The truism, that ignorance of the law is not a defense, is also a warning to know whom you’re hiring when you seek professional assistance. Check with your local and county bar association or your state bar association for a referral to ensure the attorney who works with you know the laws in your state, as well as those of the United States Government.
About The Author: Vanessa May is a regular contributor to www.wowcreditcards.com and a variety of finance blogs. Hoping to educate consumers, she uses government and reputable sources to provide up-to-date, relevant information on money management, credit/debt, credit card providers, debt services and other finance related topics. Her goal is to inform consumers by providing tips that may impact their ability to manage their financial situation responsibly.