From credit card bills and car payments to student loans and medical expenses, paying your monthly expenses can become overwhelming at times. If you have lost all or a portion of your income, making these payments each month can become problematic and even impossible.
In these situations, filing bankruptcy may be an option suited for you and your financial well-being. Unfortunately, most people are confused by the process and outcome of bankruptcy because of the many myths in circulation. By de-banking these common myths, you will have a better understanding of bankruptcy and whether or not it is the right solution for your financial needs.
1. Bankruptcy Is For the Poor
One of the most common complaints that attorneys hear from their clients is that they feel ashamed that they have become too poor to pay their bills. It is important to remember that bankruptcy is an option for relief used by individuals with varying levels of income.
While shocking to learn, even some of the richest people in the United States have filed bankruptcy at one point in time. Mike Tyson, Marvin Gaye and even MC Hammer have all used bankruptcy as a means to reorganize their debts.
2. Bankruptcy Ruins Your Financial Future
Another common myth is that filing bankruptcy will ruin your finances in the future. Fortunately, this is also false, since bankruptcy can be used as a method of rebuilding and protecting your finances in the future.
Chapter 7 bankruptcy will stay on your credit report for an estimated 10 years after filing. And chapter 13 will affect your credit for 7 years.
While it is on your credit, bankruptcy may affect your approval chances when applying for loans and credit cards. If you are approved for bankruptcy on your credit, interest charges and monthly payments will be higher compared to someone with good or great credit.
Your credit will be affected, but you can rebuild it after filing. Apply for a secured credit card with your bank and make a small purchase every few months. Then make sure you pay off the balance immediately after the purchase. This will help you reestablish credit and ensure a healthy financial future after bankruptcy.
3. Bankruptcy Wipes Out All Debts
Before you can understand which debts will be wiped out, you need to understand the different types of bankruptcy.
Chapter 7 is known as a liquidation type of bankruptcy. After passing a means test that shows you are unable to pay off the debts, chapter 7 bankruptcy can be filed. This type of bankruptcy wipes out most debts, including personal and student loans, credit cards and medical bills.
Chapter 13 bankruptcy, known as a restructuring or reorganization of debts, is a bit different. If you do not pass the means test, your attorney will design a plan to help you pay down your debts.
Restructuring your debts with chapter 13 does have many benefits, however. You will not only be able to make one payment to a trustee who disperses the payments to creditors but also to pay a smaller balance with fewer interest charges.
With each type of bankruptcy, exemptions can be filed. These exemptions can help protect your vehicle and home, even if you owe money on an auto loan or mortgage.
4. Bankruptcy Can Be Filled On your Own
One of the most important myths to de-bank is that you can file bankruptcy on your own. This myth is actually partially true. Known as filing pro se, individuals can file chapter 7 or chapter 13 without legal assistance. However, filing on your own is risky since knowledge of legal and financial matters is essential. Without the help of an attorney, filing for bankruptcy on your own can be a costly and overwhelming mistake.
To learn more about filing bankruptcy, consult the law offices of Olson, Kulkoski, Galloway & Vesely, S.C.