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12 myths about bankruptcy
No, you will
not lose everything you own. And no, you can't wantonly run up
bills
just before filing; that's called fraud.
Article from MSN
MoneyCentral originally published by Bankrate.com
Like most big,
bad scary things, bankruptcy has a
reputation based on a few tidbits of truth
and lots of embellishment. It's not nearly
as frightening once you know the truth.
With a mind
toward de-clawing the monster, here are a
dozen misconceptions about bankruptcy:
1.
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 number of
people filing is so massive that very few
publications have the space, the manpower or
the inclination to run all of them.
2.
All debts are wiped out in Chapter 7
bankruptcy.
You wish.
Certain types of debts cannot be discharged
and erased. They include child support,
alimony, government-issued or
government-guaranteed student loans, and
debts incurred as the result of fraud. It's
also very unlikely that a judge will
discharge legal settlements you've been
assessed, such as money you've been ordered
to pay to someone who sued you.
3.
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
nonprofit, Massachusetts-based Cambridge
Credit Counseling Corp.
"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).
4.
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. After
bankruptcy, those loans will be tough to get
and the higher interest rate on such a large
purchase would have a significant effect 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.
5. 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.
6.
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.
7.
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.
8. 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.
9.
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.
10.
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.
11.
You can only file for bankruptcy once.
You can file
for bankruptcy more than once, but the
bankruptcy law that went into effect in
October 2005 lengthened the required wait
between filings. You can only file for
Chapter 7 bankruptcy once every eight years.
You have to wait two years to repeat a
Chapter 13 filing and four years between a
Chapter 7 and a Chapter 13 case.
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.
12. 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. The trustee knows what to look
for.
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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