If you’re seriously considering filing for Chapter 7 or Chapter 13 bankruptcy, you’ve probably heard plenty of daunting rumors about the process. And if those rumors triggered more than a few second thoughts, that’s completely understandable. It isn’t nearly as intimidating or as difficult to recover from as much of the hearsay makes it out to be.
What’s true and false when it comes to filing for personal bankruptcy? Ron Lunquist, Attorney at Law, breaks down the fact and fiction behind five prevalent bankruptcy rumors below.
You’ll Lose All Your Property If You File
This is downright FALSE. No one is going to swoop onto your property and take away all of your things. In fact, most people don’t lose any property when they file for bankruptcy because of something called exemptions. These vary by state, but overall, less than 5% of bankruptcy cases nationwide involve any degree of personal property loss.
After You File for Bankruptcy, You’ll Never Qualify for Credit Again
This is FALSE. After your bankruptcy discharge, you’ll likely begin receiving credit offers within a few weeks. After bankruptcy, many lenders see you as a lower risk since you’ve effectively eliminated many of your debts and cannot file for bankruptcy again for a predefined period.
Your interest rates will be higher after you file, but with time, they’ll decrease. You may also need to open secured lines of credit at first, but as you reestablish your track record, that will change, too. If you’re looking to get a mortgage, that’s something you’ll have to wait a little longer for, but qualifying certainly isn’t out of the realm of possibility.
Most people who file for personal bankruptcy find their credit rating reaches “good” or “excellent” status within two years after their case is discharged. And of course, with that kind of credit rating, you should have very little issue qualifying for new credit.
Slowly Paying Down Your Debts Is a Better Option Than Bankruptcy
This isn’t typically the case for most people who can benefit from filing for bankruptcy. If your debts are substantial, it can take you years to pay them off. Depending on your current financial situation, filing for bankruptcy can help you eliminate a large portion of those debts in just a matter of months.
If you’re worried about the hit to your credit, that’s understandable. But understand, too, that like all negative marks on your credit report, bankruptcy will go away with time. More importantly, when you approach the credit rehabilitation process with a solid plan and diligence, you can rehab your score in just a couple of years at most.
When you need to get out from under the weight of overwhelming debt and you don’t want to struggle with years upon years of payments, filing for bankruptcy may truly be the best option.
If You Make A Decent Income, You Can’t File for Bankruptcy
This isn’t true at all. Just about anyone can file for personal bankruptcy, but the type you’re allowed to file for depends on your income and expenses. How do you know which type you qualify for? Your bankruptcy attorney will help you figure that out, but here’s a brief overview:
● Chapter 7 bankruptcy. You must pass a means test to qualify for Chapter 7 bankruptcy. This test determines whether your current monthly income is high enough to allow you to pay back your debts or even make a meaningful dent in them.
● Chapter 13 bankruptcy. To qualify for Chapter 13 bankruptcy, you must have enough income to repay at least a portion of your unsecured debts according to a payment plan. If you fail the Chapter 7 means test, you can still file for this type of bankruptcy.
Filing for Bankruptcy Means You’re a Failure
This is downright FALSE! And unfortunately, it’s probably the most prevalent and harmful myth surrounding bankruptcy. Filing for bankruptcy isn’t an easy decision and it’s one you’ve likely come to after considering your options extensively. In no way, shape, or form does bankruptcy make you a failure — quite the opposite, actually.
Filing for bankruptcy indicates an understanding of the need to correct your existing financial situation. More importantly, it demonstrates a willingness to take action and work toward a solution. Most people who file for bankruptcy don’t do it because they mismanage their finances. And more than likely, you fall into that category too. The most common reasons for filing include:
● Unforeseen medical expenses
● Job loss
● Separation or divorce
● Unforeseen emergency expenses
Even if you’re considering filing as a result of financial mismanagement, that does not make you a failure. Rather, it makes you a person who recognizes the need for change. More importantly, it makes you a person who takes it upon yourself to do what it takes to fix the situation.
Is Bankruptcy Right for You? Schedule a Consultation With a Twin Cities Bankruptcy Attorney
If you’re struggling with overwhelming debt and are looking for a fresh start, filing for bankruptcy may be your best option. To determine whether filing is the right choice for your needs and situation, schedule a consultation today with Ron Lundquist, Attorney at Law. As one of the leading bankruptcy attorneys in the Minneapolis/St. Paul metro area, I have over 20 years of experience guiding clients through the bankruptcy process. When you need a knowledgeable attorney in your corner, I’m here for you too.
Feel free to call my office at 651-454-0007 or request a free consultation here to get started.