Two Big Bankruptcy Myths Busted
Myths can be harmful when they are believed at the cost of someone's financial welfare. When it comes to bankruptcy, many would-be filers are frightened away at the thought of losing property and of never obtaining credit again. Both myths are an exaggeration of things that happen only to a small minority of bankruptcy filers. Find out more below.
Bankruptcy means a loss of property
Chapter 7 may also be known as liquidation bankruptcy. However, very few filers lose property when they file. Assets are protected by exemptions offered by state and federal bankruptcy laws. Each state has a unique set of exemptions – some are generous, and some are stingier.
Make a list of your assets that includes real estate, vehicles, recreational vehicles, artwork, collectibles, jewelry, cash, investments, precious metals, and anything else you can think of that has value. Then, check the exemption list for your state. Notice that some states allow filers to use either the state or the federal exemptions, by the way. Homestead exemptions cover the filer's primary residence and wildcard exemptions can be used for anything.
Speak to your bankruptcy lawyer about your assets. Most lawyers discourage people from filing chapter 7 if they could lose assets. Instead, they may be steered toward chapter 13, which doesn't use exemptions because debtors won't lose any property. Chapter 13 is a debt repayment plan that has debtors paying most if not all their debts gradually.
Bankruptcy will ruin your credit
When consumers fail to make payments on time, that results in a mark on their credit report. It only takes a few late payments on credit cards or an auto loan to make the credit score plunge. It's not so much the bankruptcy filing that caused the debtor to have bad credit ratings. Instead, it's what happens before they get around to finally filing for bankruptcy. Those marks can last for several years and will affect your credit.
Filing for bankruptcy also affects your credit score but it's not as bad as many may fear. The federal filing shows up once the bankruptcy is final. However, all the accounts listed on the bankruptcy debt matrix will disappear entirely from the report. That is why bankruptcy is known as a fresh start. Many filers are surprised at how soon they begin getting offers for credit cards after they file. Be cautious as you build new credit, however. Take it slow and don't get in over your head.
Don't automatically believe that you will lose property or have a bad credit score with a bankruptcy filing. Speak to a bankruptcy lawyer to find out more.