The word ‘bankruptcy’ means different things to different people. The fact is that there are many misconceptions about bankruptcy. We need to clear all these misconceptions and myths surrounding bankruptcy to get a clear idea about what bankruptcy is all about.
Will Lose Every Thing
Many people think that they will lose everything if they file for bankruptcy. This misconception keeps people from filing bankruptcy, even when they really need to. Bankruptcy laws vary from state to state; however, every state offers exemptions of certain assets that cannot be sold. Your house, car, money in retirement plans, household goods and clothes are some of the assets that are in the exemption list.
Getting Credit
People believe that they will never be able to build credit again if they file for bankruptcy. The truth is quite different. You will definitely get credit card offers because credit card companies know that you do not have any debt. However, you would have to deal with high interest rates. Getting a mortgage would not be an impossible task either but you would have to work a little hard for it. Moreover, the interest rate would be on the higher side.
Should We File Together
Many married people think that it is necessary to file for bankruptcy together. It is not necessary. If significant amount of debt is in the name of only one spouse, then only he or she should file. However, if both the spouses have debt that they want to clear, then they should file together. Doing otherwise would allow the creditors to demand the entire payment from the spouse who did not file.
Which Creditors To Include
When you file for bankruptcy, you have to include all your creditors in the petition. You cannot leave some of your creditors off the list and hope that someday you will pay them back. Bankruptcy is a take-all or leave-everything deal.
Improve Credit
One of the common misconceptions that most people have about bankruptcy is that it would improve one’s credit scores. They argue that since they do not have any debt, their credit will definitely improve. However, the truth is that bankruptcy has a negative effect on your credit ratings. Furthermore, it will be there on your credit report for 10 years.
How Many Times
Many people also believe that they can file for bankruptcy only once. According to the new bankruptcy law, you could file for Chapter 7 bankruptcy once every six years. Chapter 13 bankruptcy can be filed more than once every six years; however, you can only have one case open at a given time.
Easy Way Out
For many people bankruptcy is an easy way out of their debts. Some believe that they can simply max out their cards and then file for bankruptcy. This way they do not have to pay for anything. This is fraud and illegal. When you file for bankruptcy, a trustee will review all your purchases and believe me he/she would find out what you have been upto.
Inherited Money
If you win lotto or inherit some money while bankrupt, you are required to declare it. I know it sounds unfair, but the money will be used to repay your creditors. If you do not declare your newly acquired funds, a Bankruptcy Restraining Order will be imposed. This order will modify the terms of your bankruptcy.
Clearing All Debts
Some people are under the misconception that bankruptcy will clear them of all debts. This is not true. If you owe child support, alimony, fines or student loans, you would have to pay for them. If you have cheated someone and the court has ruled against you, you have to pay that debt as well.
Clearing these misconceptions gives us the right picture about bankruptcy. Finally, one should always remember that bankruptcy is a life changing event that can cause lifelong damages. So it is very important to understand what you are getting into.