You probably hear a lot of things said about bankruptcy. However, there are some myths about bankruptcy circulating in the market that can affect your decision on matters of finance. In this article, let’s take a look at some of these bankruptcy myths and the truth behind them:
1. You will never recover from the damage bankruptcy brings. True, filing for bankruptcy will erase all your credit history but the damage does not need to last forever. You will have the chance to re-establish your credit history and build up your personal credit score immediately after your debts have been discharged from a bankruptcy.
2. You must wait for seven years before you can apply for new credit. A record of bankruptcy will remain in your credit report for seven years but it does not mean you should wait that long before you can acquire new credit. The only way you can re-establish credit history is by acquiring new credit. Search the market and you can find creditors and loan providers who are willing to grant approval to customers who have been discharged from bankruptcy for at least two years. During this span of time, you can take steps to start rebuilding credit such as by acquiring a department store credit card, a prepaid credit card or a secured credit card.
3. You should immediately file for bankruptcy to escape from debts. Since the new bankruptcy law has been approved, the application process for bankruptcy has been tightened to discourage consumers from declaring bankruptcy when other solutions are available. For example, you must first complete a credit counseling session with an accredited credit counseling agency before you can file for bankruptcy. It’s important to remember that although bankruptcy is not a dead-end, it should only be taken as a last resort after other solutions have been considered.
4. All your debts can be discharged from bankruptcy. When you file for bankruptcy, you will be subjected to the “income means test”. The bankruptcy court will make a decision whether you qualify for a Chapter 7 or Chapter 13 bankruptcy. All your debts can be discharged if the court decides that you are qualified for a Chapter 7 bankruptcy.
On the other hand, if the court finds that you are capable of repayment, a Chapter 13 bankruptcy will give you the chance to pay your creditors under the protection of the bankruptcy law. This means, a certain percentage of your monthly salary must be paid to your creditors, making sure that you a sufficient amount of your income is reserved for your monthly expenses.
In addition, there are types of debts such as child support, student loans and tax liens that cannot be discharged by bankruptcy.
5. Declaring bankruptcy is a quick process. Preparing and submitting bankruptcy application can be a complicated task. It is very important to provide accurate information when filling-out a bankruptcy application. This is why it is recommended that a person seek advice and assistance from an attorney who specializes in bankruptcy cases.
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