Because banks, financial institutions, and credit card companies want to dissuade consumers from filing bankruptcy, there are many myths about filing bankruptcy and its effects. Now for some truth, here are five basic facts about bankruptcy.
- Paying your debts in full isn’t always the best option.
One reason that bankruptcy is it difficult decision is that there are so many options for dealing with burdensome debt. The best option for solving financial problems depends on each person’s individual circumstances. Financial institutions want consumers to believe that bankruptcy is always a bad idea. But for many, filing bankruptcy may be the best option and solution.
- Bankruptcy will not cause you to lose everything.
A common myth of bankruptcy is that bankruptcy filers must surrender their house, motor vehicle, and other important assets. However, the opposite is true – the great majority of Chapter 7 filings are classified as “no-asset” cases and means that the debtor surrenders no Real or personal property. Exemptions allow bankruptcy debtors to exclude, or exempt, property from their bankruptcy estate. Only property in a debtor’s bankruptcy estate is subject to the reach of creditors in a bankruptcy case.
- Filing for bankruptcy does not represent failure.
Perhaps the most common bankruptcy myth is that bankruptcy represents personal failure. Only those individuals with character flaws and other shortcomings file bankruptcy. Since BAPCPA was enacted in 2005, annually, more than half of bankruptcies were the result of medical bills resulting from medical deductibles increasing seven times faster than wages. In no way is this type of bankruptcy filing related to inadequate financial planning.
- Filing bankruptcy will not ruin your future financially.
Data collected by Equifax indicated that Chapter 7 bankruptcy debtors who filed in 2010 had an average credit score of 538.2 on Equifax’s scale of 280 to 850. This average score increased to 620 by the time these bankruptcy cases were closed and finalized, six to eight months later. Inevitably, there will be limited access to credit with higher interest rates for some time after the bankruptcy filing. Also, bankruptcy filings remain on a credit report for seven to 10 years, depending on whether filed under Chapter 7 or chapter 13.
- Not every type of debt is dischargeable in bankruptcy.
Both Chapter 7 and Chapter 13 bankruptcy cases discharge most types of debt. As with just about everything in life and law, there are exceptions to this. The most common types of debts there are not dischargeable in a bankruptcy case include taxes, child support, spousal support, and student loans. However, credit cards, medical bills, and personal loans are dischargeable in bankruptcy.
A former “National Bankruptcy Attorney of the Year,” Theron Morrison leads the Morrison Law Group, one of Utah’s most respected law firms, in assisting thousands of Utah residents to solve financial problems by filing bankruptcy. We offer debt relief services related to chapter 7 and chapter 13 bankruptcy, workouts, delinquent taxes, loan modifications, short sales, student loans, and defending the residents, consumers, and taxpayers of Utah against illegal collection. Contact the Morrison Law Group today at 801-456-9933 to consult with an experienced bankruptcy and debt solution attorney. Happy Thanksgiving from the Morrison Law Group!