If you are considering bankruptcy, but have serious misgivings that are preventing you from making a decision to proceed, prepare to be enlightened. Here is a list of the top five big bankruptcy myths.
Myth #1 - Everyone will know I've filed for bankruptcy.
Don't be offended, but almost nobody will know (or care) that you have filed for bankruptcy. Unless you're a big shot in your town or someone the media likes to highlight from time to time, it is very unlikely that anyone other than your creditors and perhaps a few close friends and family members will know you have filed.
Yes it is true that bankruptcy is a public legal proceeding, but the fact is there is no single place that you can find an up-to-date list of people who have recently filed for bankruptcy. The number of people filing for bankruptcy is so high that very few publications have the manpower or motivation to assemble and update this information.
Myth #2 - When you file a Chapter 7 bankruptcy all your debts are wiped out.
This is simply not true. Certain types of debts such as child support, alimony, government-issued or government-guaranteed student loans, and debts incurred as the result of fraud will not be forgiven. Also most judges will not discharge legal judgement amounts you've been assessed as the result of someone suing you.
Myth #3 - Everything I own will be taken away from me.
This is a major misconception that frightens many people from filing bankruptcy. They assume they will be thrown out on the street with no house, no car and no money in the bank. But this is not the case. If it was, almost nobody would file for bankruptcy.
Actual bankruptcy laws vary from state to state, but every state has exemptions that protect certain kinds of assets. These include your house, your car (up to a certain value), household goods and clothing and money in qualified retirement plans. In many cases a person will pass right through bankruptcy and essentially keep everything they have. That includes their mortgage and car loans as long as they keep on making the regular payments.
Myth #4 - I'll never get credit again.
Believe it or not, it won't be long before those eager beaver credit card companies will be sending you offers again. In fact there are companies that target high risk borrowers and people who've had credit problems. They charge exorbitant interest rates but that is the price you pay for needing credit in such circumstances.
For this very reason most people are advised not to start running up bills again, and should most certainly stay away from acquiring a number of high interest rate credit cards. While it is true that most people who need a car loan will be able to find someone prepared to give them one, the rate will be very high. That is why it is best if you are thinking of buying a house or car to get these set up before you file and while your credit score still looks presentable.
After bankruptcy, those loans will be tough to get and the higher interest rate will 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 in California, 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.
Myth #5 - When you're married, both spouses have to file for bankruptcy.
Not necessarily. It depends whether one or both spouses are liable for the debt. Usually if both spouses are liable the creditor will try to get payment out of either or both. And if one spouse files, the other one is still vulnerable to being required to pay the whole amount.
On the other hand if a significant amount of debt is in the name of one spouse only, the other spouse is not liable for that debt and is probably not advised to file for bankruptcy. This would typically be the case when one spouse has suffered losses from a business which the other spouse has no involvement in.
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