Being properly educated about bankruptcy is important before deciding whether or not it can help you.
Over the past few years, reports have indicated that the nation’s economy is improving. While that may be true that does not mean that every individual’s financial situation has improved. Many consumers in Cincinnati continue to struggle to make ends meet and to keep up with seemingly unending stacks of bills to pay.
A bankruptcy plan can offer a financial fresh start to these residents. Before making this choice, however, it is important to understand some facts about bankruptcy plans to avoid problems down the road. There are many myths that abound about bankruptcy. Here are seven common misconceptions and the truth behind them.
1. Bankruptcy is An Option for Everyone
Filing Chapter 7 or Chapter 13 bankruptcy may not be an option for every person, since the U.S. Bankruptcy Code establishes eligibility criteria for each chapter. Since Chapter 13 bankruptcy requires a debt repayment plan, consumers must show that they have adequate income to follow the plan. To file Chapter 7 bankruptcy, which does not require any repayment of the debt, consumers must pass a “means” test to show that their income and debt levels justify this type of filing.
2. I’ll Lose My Home
Homeowners don’t always lose their homes in Chapter 7 bankruptcies. Regarding the belief that homes are always lost when a Chapter 7 bankruptcy is filed, the truth is that this can happen. However, Forbes explains that under bankruptcy law, exemptions allow consumers to keep assets up to certain dollar values. This includes homes. If a home’s value is below the level stated in an exemption, it can be retained even through a bankruptcy.
3. Bankruptcy Will Leave Me Totally Debt-free
A bankruptcy cannot eliminate all types of debt. The American Bankruptcy Institute points out that some types of debt are unable to be handled or included in a bankruptcy. These include required spousal support payments, child support payments and student loans. If a consumer has amassed debt through fraudulent means, that debt will also be unable to be included in a bankruptcy.
4. My Debt Will Be Erased Off My Credit Reports
Once paid or discharged through a bankruptcy, debts will not disappear from credit reports. In a bankruptcy, debts are either completely discharged or paid through an approved plan, such as in a Chapter 13 bankruptcy. Once a debtor receives a discharge from the bankruptcy, these debts will remain on a credit report but will note the paid or discharged status.
5. My Financial Future is Ruined
Many people may hesitate to consider filing bankruptcy because they worry that they will face lasting adverse effects if they do so. These include the following potential outcomes:
- Termination or other negative consequences at work
- Loss of the right to file bankruptcy again in the future
- A damaged credit score and inability to secure credit
However, these concerns are often unsubstantiated. Termination or discrimination due to bankruptcy is illegal, and government entities can’t factor a bankruptcy filing into hiring decisions. People who have filed bankruptcy once are permitted to file again after enough time has passed. Additionally, as Time magazine notes, consumers can take various steps to rebuild credit after bankruptcy. Some people may even see their credit scores improve immediately after the filing is complete.
6. I Can’t Get a Home Mortgage
Debtors can apply for home mortgages again after filing bankruptcy. As noted by the New York Times, people wishing to obtain a new home mortgage after filing bankruptcy can do often do so. Many lenders will request information about the bankruptcy. This may include details about what circumstances led to the filing and how the applicant’s current situation is now different.
7. I Don’t Need Legal Help
Legally, consumers who file bankruptcy without assistance are still responsible for understanding and complying with the U.S. Bankruptcy Code as well as local laws. Mistakes during the filing process can undermine a person’s rights or even lead to dismissal of his or her bankruptcy case. Furthermore, consumers who file bankruptcy on their own may be at risk for making adverse decisions, such as choosing an inadvisable chapter of the Code to file under.
Given these risks, most people who are considering filing bankruptcy should consider at least consulting with an attorney beforehand. Filing for bankruptcy offers many benefits to debt-laden consumers. However, it is essential to get the facts about the process first. A bankruptcy attorney can help a person better assess his or her options and determine whether professional representation might be advisable during the filing process.