There are a lot of untruths, or myths, surrounding filing for personal bankruptcy. Sometimes these myths are perpetuated based on rules, regulations and laws that have changed over the years. Most of the time, however, the myths are due to the complexity of bankruptcy and people getting confused about the differences between Chapter 7 and Chapter 13 bankruptcy filings, which are the two most common types of bankruptcy.
While it is best to consult with a bankruptcy attorney who can answer your specific questions about the bankruptcy process, analyze your situation and provide expert advice on the best way to manage and discharge your debt, below are answers to some common bankruptcy myths.
Myth #1: I will lose most or all of my property when I file for bankruptcy.
In a Chapter 13 bankruptcy filing you keep all your assets, and your income is used to pay your debts over a period of time, usually three to five years. In a Chapter 7 bankruptcy your assets will be seized by a court appointed trustee and sold to pay your debts. Certain property is exempt, or protected, from having to be sold to pay debts under federal bankruptcy law or under the laws of your state.1 In general, you will be able to keep part of the equity in your home or automobile, personal items, clothing, tools needed for your employment, Social Security, and any other public benefits.2
The assets that will be used to pay your debts include money in your bank account or investment accounts, any property you own which is not your primary residence, recreational vehicles, boats, a second car or truck, collectibles or other valuable items. The property that you can keep, that is exempt, differs from state to state. Some states allow a person filing for bankruptcy to choose whether they wish to use the state’s exemptions or the federal exemptions. This is an area where a bankruptcy attorney can provide guidance in helping you choose which exemption is best depending on the property you own and how much of it, dollar wise, would be exempt.
Myth #2: I won’t be able to get credit after bankruptcy.
Bankruptcy does make it difficult to get credit, as a bankruptcy will be on your credit report for seven years if you file for Chapter 13 bankruptcy protection or ten years if you file for Chapter 7 bankruptcy protection.3 According to Experian, by paying your bills on time and carrying little, if any, debt your credit scores can rise significantly within a year of having your bankruptcy discharged.4
A secured credit card can help rebuild your credit. How a secured card works is that you pay the credit card company upfront an amount that is equal to your credit limit on the card. Your secured card works like any other credit card. There are many other ways to rebuild your credit. These include getting a secured loan or credit-builder loan, getting someone to co-sign a credit card or loan with you, and becoming an authorized user on someone else’s credit card.5
Myth #3: My bankruptcy will be public knowledge.
Because they are administered through the court system, once your bankruptcy is discharged (finalized), the court record becomes part of the public record. The public record is any document that a person can access through a court or other government entity without having to first get authorization.
Sensitive information on the bankruptcy forms, such as social security numbers, birthdates and names of minor children will be blanked out on the information available as part of the public record. In the past, newspapers used to routinely publish information on bankruptcies, but that is rarely the case today, even in smaller communities.
Myth #4: I will be debt free after bankruptcy.
You may not be entirely debt free after bankruptcy. Debts which are “secured” by collateral, such as most home mortgages, allow the lender to place a lien on the property. In a Chapter 7 bankruptcy filing, your mortgage may be discharged or eliminated, but, with the lien on the property if the mortgage remains unpaid the lender can still recover the collateral by foreclosing on the property once the automatic stay is lifted.7 Alimony, child support, student loan and tax debts generally are also not part of bankruptcy proceedings, and thus have to be paid.
Hines Law is a top-rated bankruptcy firm that provides debt solutions to the residents of Massachusetts with more than a decade of satisfied clients. Specializing in Chapter 7 and Chapter 13 filings, we are committed to serving individuals with the care and compassion they deserve during bankruptcy protection. If its time for you to take control of your debt and get your life back on track, call us for a Free Consultation.
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1 Chapter 7 Bankruptcy Basics
Link: https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics
2,3 What You Need to Know About Bankruptcy
Link: https://www.investopedia.com/articles/pf/07/bankruptcy.asp
4 Can I Get a Credit Card After Bankruptcy?
Link: https://www.experian.com/blogs/ask-experian/can-i-get-a-credit-card-after-bankruptcy/
5 How to Rebuild Credit After Bankruptcy
Link: https://www.nerdwallet.com/article/finance/rebuild-credit-after-bankruptcy
6 What does it mean that a bankruptcy is public record?
Link: https://upsolve.org/learn/are-bankruptcies-public-records/
7 What Bankruptcy Can and Cannot Do
Link: https://www.nolo.com/legal-encyclopedia/chapter-7-13-bankruptcy-limits-benefits-30025.html
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