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Myths about bankruptcy

myths about bankruptcyYou can file for bankruptcy as often as you’d like. The new bankruptcy law that was instituted in 2005 was meant to curb some of the more egregious abuses of the bankruptcy court. Now you cannot file for Chapter 7 within 8 years of previously filing, which is to say the normal 7 years of effect on your credit rating plus one year. You may not file for Chapter 13 within two years of another Chapter 13 or 4 years of any other bankruptcy filing.

All debts can be discharged. Not true. Some debts are not eligible for debt discharge.

My bankruptcy won’t affect my spouse’s credit. People can file for bankruptcy either individually or as a couple. However, they may have property and assets in common, and if one spouse files then the credit of the other spouse can be affected by anything jointly held.

Filing for bankruptcy gives you a fresh start on your credit. Yes and no. Debt discharge will definitely give you a fresh start but, but it by no means wipes the slate clean for your credit report. Your bankruptcy will follow you and tarnish your “credit image” for 7 to 10 years, depending on the type of bankruptcy you filed. You will have problems getting loans without a high interest rate or some sort of collateral. But see the next item…

I will not be able to buy a home if I file for bankruptcy. While your credit is impaired for a fairly lengthy period of time, this does not mean that you cannot get any credit. In fact, if you take the right steps to reestablish credit after your bankruptcy, you can qualify for a FHA loan with in a few years. Lenders tend to favor more recent credit activity, and if you’ve kept your nose clean after your discharge and demonstrate you can pay back a loan with a secured debt, you will gradually see your credit rating rise.

I can be fired for filing for bankruptcy. Not true, but with this added proviso: employers are legally allowed to check up on your credit rating provided they have your written permission. And credit checks on potential employees is becoming more and more routine. But while it is technically illegal to discriminate against someone solely for their credit record, no employers will admit to doing this.

I’ll get to keep everything/they’ll take everything. A lot of people believe one of these two extreme statements. Some people believe that bankruptcy will allow them to wipe out their mortgages and car payments, while others believe that they will be literally thrown out into the street with nothing but their clothes. The truth, as usual, is somewhere in between. It is practically never true that your house can be taken from you, at least if you have kept your payments up. If you file for chapter 7 bankruptcy, you may have to give up your car if it is worth over $2000.

Only failures file for bankruptcy The reality is that most people who file for bankruptcy have incurred a large and unexpected debt, usually a medical bill.