Credit, Debt, Government, Personal Finance 

Top 10 Bankruptcy Myths

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With the new bankruptcy laws, Bankrate has published a very timely article listing the top ten myths as discovered by Experian. Some of these are common sense but a few are the types of myths that may or may not be true, depending on your perspective. For example, Myth 3 about keeping your property after a bankruptcy probably confuses most people because they hear of someone in Florida filing for bankruptcy but still get to keep their home (like OJ Simpson). Well, that’s a special case because the Florida homestead protection prevents creditors from taking the permanent home of a Florida resident but it wouldn’t apply to a car or boat (or a home if they still had an outstanding mortgage).

Myth No. 1: A consumer can file for bankruptcy as many times as he or she likes.
If you filed for Chapter 7 within the last 8 years, you can’t file for it again. If you want to file a Chapter 13, you will not receive a discharge if you received one within two years or within four years if you were discharged from a Chapter 7, 11, or 12. So in a sense, yes you can file again, but the timing restraints are more rigorous.

Myth No. 2: Filing for bankruptcy will give a consumer a fresh new start with their credit.
Ask anyone who has ever filed for bankruptcy… getting credit extremely extremely hard and the rates will be horrible. It can even effect your ability to get a job. I think this is fair because otherwise everyone would spend beyond their means and just wipe the slate clean whenever they had a chance.

Myth No. 3: The car, house and boat can be kept without having to pay off the loans when included in the bankruptcy file.
If you have a loan on it, then you probably used the car/house/boat as collateral and put a lien on it, so when you go bankrupt the bank will seize your property.

Myth No. 4: All debts can be discharged in a bankruptcy filing.
Usually child support, student loans, and taxes won’t be discharged.

Myth No. 5: When one spouse files for bankruptcy it will not affect the other’s credit.
“Til death do us part…” is true with joint accounts. If you both have your name on the account and one of you goes bankrupt, the account is marked and it carries over to the other person.

Myth No. 6: Filing bankruptcy could cost you your job.
It shouldn’t, but it might. When you go for a job, sometimes they ask for a credit check but they aren’t allowed to disqualify you on those grounds alone. But just like other discrimination’s, it’s very very hard to prove it.

Myth No. 7: Purchasing a home and obtaining new credit after a bankruptcy is out of the question.
See #2, it’s not impossible but it’s very very difficult. Getting a mortgage is hard enough, getting one when you’ve recently been in a bankruptcy is even harder.

Myth No. 8: A consumer can choose whether or not to include all their debt in a bankruptcy filing.
You’re going to court, tell the truth.

Myth No. 9: Late payments on a credit report are just as bad as filing for bankruptcy.
Read any article on credit scores and you’ll learn that late payments will ding your credit score but a bankruptcy will derail it. Most credit card companies won’t even report it if you pay within 30 days, it’s just not worth the paperwork.

Myth No. 10: A spouse can proceed with filing for joint bankruptcy without getting the other’s permission.
If it’s joint, both have to consent.

{ 4 comments, please add your thoughts now! }

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4 Responses to “Top 10 Bankruptcy Myths”

  1. What the article does not say is that for people who are significantly behind on their debt payment with no realistic means of bringing those accounts current, bankruptcy may be a viable option. Myth #2 indicates that there is no opportunity to obtain credit post-bankruptcy; this is incorrect. Many people report having new credit cards, home mortgages, and car loans in as little as 18 months after bankruptcy. The decision of a company to grant credit concerns the customer’s current situation; consequently, what becomes important is what you do after your bankruptcy case is completed. If you do nothing, save no money, and don’t put your finances in order then you won’t get new credit (nor should you – never get new credit unless you can pay for it).

  2. jim says:

    My response to the myth doesn’t at all say that there is no opportunity to get credit after a bankruptcy, but everything I’ve read (which has been anecdotal) has indicated getting credit is very difficult and your rates will not be good and it matches what common sense would tell you. If I’m a creditor, I’m not going to smile when someone who just went bankrupt shows up for a loan because they are a riskier debtor than someone who hasn’t gone through bankruptcy, plain and simple.

    People who have gone through bankruptcy can get credit but it’s much harder but it gets easier as time passes and greater responsibility is shown.

  3. Matt says:

    Don’t know for sure about child support, but student loans and taxes _can_ be discharged in Chapter 13…just not in Chapter 7.

  4. Student loans can be discharged in a Chapter 13 only in the same way they can be discharged in a Chapter 7; that is, though an adversary proceeding and a showing of undue hardship.

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