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Bankruptcy Facts, Myths and Misconceptions

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If you are struggling with debt, you may be thinking about filing bankruptcy. You may have heard several negative things about the bankruptcy process, some of which may be untrue. We can help you separate the myths from fact and clear up the misconceptions, so you can make an informed decision about your next step.

Debt Collectors Can Take Your House and Car

This is sometimes true, but not usually. Filing Chapter 7 is often a good option and 99% of the time you can keep the home and car and continue making your payments, or surrender and cancel the debt on these items. You will need to sign a reaffirmation agreement. This document is typically prepared by the lender.

Filing a Chapter 13 bankruptcy stops all foreclosure and repossession actions. During the bankruptcy process, debt is reorganized into a repayment plan, often allowing debtors to pay back past due mortgages or loan payments and keep their house and car by paying over time. However, some debtors may choose to surrender their house and car to relieve these debts and start anew. 

If you're in danger of losing your house or car, call a bankruptcy attorney before the repossession is completed.

You Can Lose Your Job

The bankruptcy laws prohibit employers from discriminating against consumers by terminating employment for filing a Chapter 7 or Chapter 13 bankruptcy.

You Can Never Borrow Money Again

Although bankruptcy can lower your credit score and could stay on your public credit report for up to 10 years, many lenders will finance you at a higher interest rate shortly after filing bankruptcy. It is common to get home loans two or three years after filing. Your credit score may be better in the long run because much of the unpaid debt will be discharged and no longer calculated in your debt-to-income ratio. Filing bankruptcy may be the only way to improve credit in the long run!

You Can’t Have Retirement Savings

Although you are limited in the value of assets you can keep within bankruptcy, the amount of money you can protect in your retirement fund is generous. You do not need to cash-out your retirement savings to pay your creditors and it’s unwise to do so. If you are considering taking money out of your retirement to cover your debt, please contact our office before doing so we can advise you of your options. 

You Can’t File Bankruptcy if You’re Employed

This is absolutely incorrect. A Chapter 13 bankruptcy is ideal for people who are employed or have a steady income but have simply fallen behind on payments. Further, as long as you fall below the gross income amount, you should have no issues being eligible to file a Chapter 7.

You Can’t File Bankruptcy on Credit Card Debt or Medical Bills

This is incorrect. The main reason a majority of people file bankruptcy is because of medical bill and credit cards. However, there are some debts that cannot be discharged in bankruptcy, including most taxes, student loans, support or divorce obligations, crimes or fraud.

Bankruptcy Can Be Denied

Less than 1% of cases filed using a competent attorney receive any kind of challenge to the right to file bankruptcy and these challenges are usually based on a high income or suspicious circumstances that involve concealment of assets or commitment of fraud or crimes. Even if a case is challenged, a well-prepared case may succeed and result in the debt relief that the client needs.

Bankruptcy Is Your Fault

Bankruptcy is not usually the result of poor life choices or bad financial decisions. It is often due to circumstances beyond your control, such as loss of job, medical expenses, family breakups, separation, divorce, an illness, or the economy. You should not feel ashamed, but rather look forward to the opportunity to move forward. Learn the facts about bankruptcy by contacting us today.

 

 

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Legacy Legal Group, PLC

107 Cass Street
Suite D
Traverse City, MI   49684

Phone: (231) 941-5000
Fax: (231) 941-5000