Attorneys Explain Myths about Bankruptcy
Myth #1: Bankruptcy Will Ruin Your Credit
Most individuals who are considering filing bankruptcy already have poor credit from months (or even years) of late payments, defaulted loans or credit cards, unpaid medical bills, or other debts, etc. So if your credit is already poor, filing bankruptcy will not really make that much difference in your credit score.
However, If you do not file for bankruptcy and continue to make late payments and/or default on debts and/or keep getting further behind on bills, you will never be able get “caught up” – and therefore will never be able to improve your credit score.
However bankruptcy provides you with a “clean slate” that enables you to eliminate certain debts, so you can actually catch up on other bills and start making loan and credit payments on time, so you can rebuild your credit faster.
Myth #2: People who File Bankruptcy are Irresponsible
According to bankruptcy experts, the three top events that lead to filing bankruptcy are: losing a job, going through a divorce, or suffering a serious illness. These are events beyond your control that can be financially devastating – no matter how financially responsible you are.
Annually more than 5 million Americans may be unemployed for six months or longer. And the Centers for Disease Control and Prevention report that 20 percent of American families have problems paying medical bills. Additionally, the divorce rate in the United States is between 40 and 50%.
Plain and simple, bad things happen to good people. And filing bankruptcy is a way to give honest, hardworking American’s a “fresh start” and an opportunity to get back on their feet in spite of these hardships.
Myth #3: Bankruptcy Discharges All Past Debts
While filing bankruptcy does give you a fresh start, not all debts are discharged by bankruptcy. Domestic support obligations – including alimony, spousal support, or child support – cannot be removed by bankruptcy under any circumstances. Restitution you have been ordered to pay because of a crime is another debt that can’t be removed by bankruptcy.
Student loan debt currently also cannot be eliminate through bankruptcy. However, Congress has proposed certain bills (such as the Fairness for Struggling Students Act) to allow private student loans to be discharged in bankruptcy court. However this legislation has yet to pass.
Many tax debts also cannot be reduced or discharged depending on the circumstances.
Myth #4: Spend as Much as You Can Before Bankruptcy
Some people will tell you that you might as well “run up your credit cards” before filing bankruptcy since “the debt will be discharged anyway”. This is INCORRECT. If you spend with abandon right before bankruptcy, the judge may consider this “fraud”. And debt that’s incurred as a result of fraud is not discharged.
Additionally, debts for the purchase of “luxury goods” and debts for certain cash advances – if incurred within 60 days before the bankruptcy was filed – will also NOT be discharged in bankruptcy.
Ask Our Attorneys if Bankruptcy is Right for You
The best way to understand if bankruptcy is the best solution for your financial difficulties is to consult with our experienced bankruptcy attorneys. We will explain your options, and help you determine the course of action that is best for you!