Bankruptcy - Common Questions And Myths

When it comes to bankruptcy, the general perception of it is that it’s a bad thing, which is not an unexpected reaction. Bankruptcy has severe consequences when it comes to your credit, no doubt, but it is also the lifeline that can rescue you from the depths of that, which we can not always prevent, debt. The intention of this article is not to promote bankruptcy or raise the common perception to a more positive level, but it has its benefits and they’re often misunderstood. So aside from the common assumptions of mostly negative points about bankruptcy, there are other points that need to be cleared up and understood.

Who can file for bankruptcy? - Any one or any company, corporation, or business unit who can no longer afford to pay their creditors. There are different chapters in the US bankruptcy code that will cover just about everyone. The most filed is chapter 7, which is what most individuals will file. This chapter allows you to discharge most of your debts without any further obligation to repay them. Chapter 13 allows individuals to reach new terms of repayment with their creditors rather than discharge the debt. Chapter 11 will give partnerships, companies and corporations, similar benefits, where the debt is not discharged either but re-arranged under new terms of repayment, that allow the debtor to make more manageable payments for a period of up to 5 years.

Will I be able to get credit after bankruptcy? - Another common perception about bankruptcy is that if you file you won’t qualify for credit again, but you can in fact get a credit card or loan after bankruptcy. It is often recommended in order to start building a history of positive credit again. There are options in which you could use a prepaid credit card, that only allows you to spend what you deposit in your account so there’s no way to over charge. You also can get a regular credit card, but more than likely it’ll be from a sub-prime lender who will almost always impose a much higher interest rate on your card. So it’s an option but just remember that it will cost you more.

Bankruptcy is a private matter - Actually no, bankruptcy is very much public record, and anyone wanting to find out if you have filed for bankruptcy, can find out. The courts really make this easy through a program called Pacer (pacer.psc.uscourts.gov/), which allows pretty much anyone to access court records for a fee. This is how you’ll often end up getting offers from local car dealers. They know that in bankruptcy cases people often liquidate assets to repay creditors, so they’re betting you had to surrender your vehicle and are in need of transportation. Often you may hear them say that they don’t care about your bad credit, but be careful with those sub-prime rates you are likely to get if you have to finance the purchase. You’ll also get lots of offers from law firms and agencies that “specialize” in credit repair after bankruptcy. This one you must consider carefully because credit repair does not apply to everyone.

My credit can be fixed after bankruptcy - This really depends on each situation. There are legitimate agencies that can really help if you have real credit inaccuracies on your credit report. But that won’t be true for everyone. Keep in mind that your bankruptcy case will be an accurate entry, so removing it from your credit report is not likely to happen by anyone’s efforts. However, real inaccuracies like debts that should be labeled “Included in bankruptcy” and are not; can be targeted for repair. It’s important that you pay close attention and research a company that “guarantees” results. You have to ask yourself, what exactly can these agencies tell the credit bureaus that will make them reverse my negative entries or that of my bankruptcy case? It sounds like a good idea, and perhaps that’s the reason why there is so much fraud in credit repair. The same goes for those agencies that tell you that instead of bankruptcy you should go with their programs that promise to pay off your debts in only a few years for pennies on the dollar. They charge high commissions and may only help you sink yourself into more debt. Research any offers carefully in these two areas before you begin using their services. The Better Business Bureau is a great place to start your search.

Filing bankruptcy gets rid of all my debts - Not all of them. Bankruptcy courts are only concerned with your secured and unsecured debt. Under chapter 7 all of your unsecured debt will be discharged for good. Secured debt on the other hand, you’ll need to continue paying for or surrender the collateral upon discharge. However, things like debts from lawsuits against you, child support, alimony, student loans, state taxes and federal taxes will not be discharged. The federal government offers a benefit that only certain people will qualify for. If you have a federal tax bill that’s older than 3 years from the time you file your bankruptcy petition, then that tax bill may be discharged. Check with the IRS yourself to find out if you qualify.

Bankruptcy will take away all my belongings - Not really, when you do file for bankruptcy, you will have a trustee assigned to your case. One of the functions the trustee has is to find assets he can liquidate to pay your creditors; this is especially true in chapter 7 files. However, most people who file chapter 7 are usually already flat broke and have very few assets worth liquidating. For example if your car is still new and it’s paid off, it could be seen as an asset that can be liquidated. But if it’s a few years old and has moderate to high mileage, the trustee may consider it exempt. Stocks, bonds and other paper assets can also be liquidated, but your individual retirement account is exempt. You should check with your account administrator to make sure there aren’t any clauses in your savings or retirement plan that may make it non-exempt. All your other possessions, such as your kitchen goods and appliances, your wardrobe, and your trinket collection will more than likely be exempt as well. What the trustee will be looking for is assets such as high end jewelry, rare collectibles or specialized items and top-shelf electronics that are worth his or her time. If you don’t own any of these don’t sweat this one too much.

I can max out my credit cards before filing - NO! And I mean no, do not make this mistake. The other function the trustee has in your case is to make sure that you are in fact in real financial hardship. Your credit card’s spending record for the last two years will be analyzed and you will be questioned during your court hearing about expenses, donations or any transfer of assets. If your credit charge history shows things like iPods, computers, vacations, bar tabs or any other type of leisure items, it will be very hard to convince the court that your case is legit. Worse yet, you could be found guilty of fraud and find yourself in a lot of trouble. So don’t do it. The general rule is to stop using your credit cards at least 90 days before you file. You should however give yourself a bigger gap and use your credit card only for necessities if you must use it.

How often can I file bankruptcy? - You can only file once every ten years. But don’t go making a habit of this, a lot of people do this and it’s not a good way to live. You should be learning from this experience not repeating it. You should be doing all you can to get your credit back to a healthier state which will not be easy. It will take years and lots of effort on your part so the sooner you start the sooner the healing begins.

I sincerely hope this has been helpful to you. If bankruptcy is something you are considering you should always consider alternatives and spend some time reading up on the subject. Bankruptcy can be complex and straight answers are not always easy to find. To make your finding answers a little easier, use the ” ” (double quotes)in your searches, for example: “how to file bankruptcy.” This will tell the search engine that you’re only interested in viewing documents that contain this exact phrase and in that exact order.

If you have serious concerns about bankruptcy, credit repair or identity theft, please visit these links Chapter 7, and Identity theft, for more information on these subjects. When you run into financial hardship and begin to consider filing for bankruptcy, you will need straight forward answers on how the process works and how to prepare. Learn the facts before filing chapter 7, chapter 13, or chapter 11. This is always free bankruptcy information. Please visit me at www.bankruptcyahead.com

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