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. But while bankruptcy certainly isn’t a walk in the park for anyone, 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 seven prevalent bankruptcy rumors below.


1. 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.


What exactly are exemptions? Check out some of Minnesota’s most important bankruptcy exemptions that can protect your assets.


2. After You File for Bankruptcy, You’ll Never Qualify for Credit Again

This is FALSE. Following 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. If you’re able to achieve that kind of credit rating, you shouldn’t have a problem qualifying for new credit.


3. You Can Only File for Bankruptcy Once

This isn’t true at all. You can file for Chapter 7 or Chapter 13 bankruptcy more than one time; however, there are stipulations on how frequently you can file. Here’s what you need to know:


●        Filing for Chapter 7 after filing for Chapter 7 previously. You must wait eight years between bankruptcy filings.


●        Filing for Chapter 7 after filing for Chapter 13 previously. You must wait six years between bankruptcy filings. Or, you must have paid your Chapter 13 payment plan in full before you can file for Chapter 7.


●        Filing for Chapter 13 after filing for Chapter 7 previously. You must wait four years between bankruptcy filings.


●        Filing for Chapter 13 after filing for Chapter 13 previously. You must wait two years between bankruptcy filings.


4. 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’re unsure what to do, there are few indications that bankruptcy may be in your best interest. Check out Should You File for Bankruptcy? 3 Signs It’s Time to learn more.


5. 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 your debts according to a payment plan. If you fail the Chapter 7 means test, you can still file for this type of bankruptcy.


Plenty of individuals who make millions file for bankruptcy, and that’s because bankruptcy weighs income and assets against debts. Like income, debt can be substantial, and a person’s ability to pay on that debt is what determines whether their bankruptcy case will be successful.


6. Married People Must File Together

The only circumstance in which both parties in a married couple would need to file for bankruptcy is if they both share liability for the debt. It’s not uncommon for one spouse to have a significant amount of debt in their name (and their name alone), especially if that debt was brought into the marriage.


If only one party is legally responsible for paying back the debt, only the liable party must file. It’s also important to note that if both parties are liable for the debt and only one spouse files, things can go south.


In such a situation, creditors are well within their rights to demand payment in full from the spouse who is also liable but did not file. While the case is pending, an automatic stay will protect the spouse who filed from any further collection actions, but that stay can’t protect anyone else.


7. 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.