There is a lot of false information out there about consumer bankruptcy. Unfortunately, major creditors like banks and credit card companies often try to scare their customers out of taking advantage of Chapter 7 or Chapter 13 bankruptcy protection. They use misleading and outright false messages about how bankruptcy works and its long-term effect on your life.
In this post, we will address five of the most common myths about personal bankruptcy that people in the Minneapolis area have. You deserve to know the truth about bankruptcy when deciding if it is the right choice for you and your family.
Myth #1: If you file, you will lose everything you own
Filing for bankruptcy does not mean you will automatically lose your house, your car and other basic assets. Bankruptcy law generally excludes certain assets, such as your family home, from creditor repayment.
Myth #2: You cannot get rid of back taxes
In Chapter 7 bankruptcy, also known as liquidation bankruptcy, you can discharge back taxes under certain circumstances. And Chapter 13 bankruptcy allows you to restructure your debt, often including taxes, into affordable monthly payments.
Myth #3: The new bankruptcy laws took away Chapter 7 as an option
Congress’ most recent reforms to the bankruptcy laws added a means test for Chapter 7 bankruptcy based on the applicant’s ratio of debt to income. However, it is still possible to qualify for many people. Consult your bankruptcy attorney before you assume that Chapter 7 is not an option for you.
Myth #4: Bankruptcy is too expensive
Hiring a bankruptcy attorney to guide you through the process can be more cost-effective than working with a debt consolidation or loan modification business. Meanwhile, compared with mounting interest payments and unpaid debt principle, the costs of bankruptcy are often quite modest.
Myth #5: You’ll never get credit again
Filing for bankruptcy does lower your credit score, but the effect is temporary. Within one to two years of discharging your debts, you should be able to qualify for certain types of loans again. You can take action immediately to start rebuilding your credit using lessons you receive in your credit counseling.
A bankruptcy attorney can answer any other questions you have about getting out of debt.