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Keep yourself away from the common myths on bankruptcy

Posted on: 15th Nov, 2005 03:33 am
Like most big things, bankruptcy often seems to be scary and it brings a lot of misconceptions along with it. No doubt, you can look for some alternatives before opting for bankruptcy but when you don't have a way out of your debt problems, this remains the one and the only option. However, when you have misleading ideas regarding this process, you may come across a lot of hassles.

Here is a list of the misconceptions that many debtors generally have about bankruptcy.
  • People will come to know about the petition:
    Unless you are a famous person or a major organization and the media reports on the filing, there is no chance of more people knowing that you have filed for bankruptcy. Moreover, the number of people filing for bankruptcy is so huge that the media does not have the time to report on the bankruptcy cases filed by each and every individual in a particular state.

  • Chapter 7 can wipe out all debts:
    Most individuals have a preconceived idea that Chapter 7 bankruptcy can dispose all debts. On the contrary, there are certain debts which cannot be discharged through filing such petitions. These debts include child support, alimony, alimony, student loans and debts incurred due to fraud.

  • All the assets will be utilized:
    This is a common conception that often prevents people from filing for bankruptcy. They believe that the government may sell off all their assets and then they'll have to start off from the very beginning. But bankruptcy laws vary from one state to another. Each state has exemptions that may protect certain assets such as your house, your car (up to a definite value), and your contribution to a qualified retirement plan. In case you have a mortgage or a car loan, you can keep them as long as you continue to make the payments.

  • It is impossible to get credit again:
    Most debtors filing for bankruptcy feel that they won't be getting credit for about 7 to 10 years since the effect of bankruptcy stays on a credit report for that time period. But you can avail mortgage loans from lenders who offer subprime loans at very high interest rates. You can also get credit card offers.

    Regarding credit cards, if you have one with zero balance on the day of filing, you need not include that in the list of filing. This is because you do not owe any money on it. Although it is not a wise thing to get involved in any debt payment right at that moment, yet you are free to do so whenever required. However, getting a mortgage or a car loan may be difficult but you may acquire it only by paying larger interests.

  • Both spouses will have to file for bankruptcy:
    This is not always necessary. But if both spouses wish to discharge debts that they are both liable to pay off, then they should file together. Otherwise, the creditor will demand the total payment from the spouse who did not file.

  • Filing a bankruptcy is not at all easy:
    Most debtors feel that it is hard to file for bankruptcy. But this is not the fact; rather such filings can often be done without consulting an attorney. But it is better to take help from an attorney regarding the legal aspects of the process.

  • Only people in debt problems file for bankruptcy:
    Most individuals are of the opinion that people file for bankruptcy after they have a bitter experience in their lives. These may include divorce, losing a job or even serious illness. It is believed that these people have struggled to pay off their bills since a long time and that is why they have filed for bankruptcy.

  • Not all creditors may be included:
    Often debtors don't prefer to include all creditors and lenders in their filings. They feel that if such debts are discharged after bankruptcy, then they will not be able to repay them. But the fact lies that you should include all your creditors and once your debts are discharged, you can pay back the creditor all your dues.

  • Bankruptcy can improve credit rating:
    It is a general conception that bankruptcy can erase all debts and hence improve your credit rating. On the contrary, bankruptcy is the most negative element that can show up on your credit report. It stays on your credit report for 7 to 10 years, thereby lowering your chances of getting credit and loans at better rates.

  • Bankruptcy cannot help in getting rid of back taxes:
    It is true that one cannot get rid off back taxes by filing for bankruptcy. But this is only possible through tax bankruptcy which requires you to file all your returns. The taxes owed should be at least 3 years old.

  • Bankruptcy can be filed only for once:
    You cannot file for bankruptcy once again within a short interval. Generally, debtors file for Chapter 7 at an interval 6 years. But you can file for Chapter 13 more often than Chapter 7, although it may not be ideal. This is because multiple filings may damage your credit rating thereby eliminating the opportunity to get credit at affordable rates in future.

  • One can utilize all debts, file for bankruptcy and never pay all the bills:
    Such activities are regarded as frauds by bankruptcy judges. The trustee appointed for Chapter 7 bankruptcy will review all that you have purchased prior to your filing. So you really can't prevent yourself from paying at least some of your bills.

Bankruptcy involves legal formalities and any wrong move on your part can lead you into trouble instead of relieving yourself from debts. Therefore, it is necessary that you clear up all your doubts and then proceed towards filing the petition. This will help you to act accordingly and prevent you from being misled by anyone.
WOW !!! that is a wonderful information you have provided jessica. This will help a lot of people.

Thanks,
Jill
Posted on: 15th Nov, 2005 08:15 pm
what is new york state policy or exemption
Posted on: 17th May, 2009 04:32 pm
hi hope!

welcome to forums!

the laws of the states vary in regards to bankruptcy exemptions. properties like your pensions and iras, home, motor vehicles, clothing, tools etc. may be exempted. for further information, you may check out the given page:
"totalbankruptcy.com/state-laws/new-york/default.aspx"

however, you should always consult an attorney before filing bankruptcy.

feel free to ask if you have further queries.

sussane
Posted on: 17th May, 2009 10:01 pm
I noted in the above that it may be ok to pay off a discharged debtor. Would they be obliged to renew the credit line or can they just take the payment.
Posted on: 29th Aug, 2010 04:06 pm
I don't think you will have to renew the credit line. You can simply make the payments to the creditor as per the payment plan.
Posted on: 30th Aug, 2010 12:13 am
there are various assets in ?, one is a 45,000 dollar truck that has 30,000 dollars left on the truck loan. Can i still keep it under chapter 7 even though it has approximately 15,000 in equity?
Posted on: 22nd Dec, 2010 07:45 pm
Hi Lobo,

If there is equity in the property, then there are chances that the bankruptcy trustee will be able to sell off the property in order to pay off your creditors.

Thanks
Posted on: 23rd Dec, 2010 07:28 pm
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