Bankruptcy – the term brings up some pretty unsettling images for many people. The idea of being destitute, living the rest of your life under a label that you can never quite shake. Unfortunately, many of the assumptions people have about bankruptcy are untrue.
Bankruptcy is a tool, a process that serves an important purpose in society. The process is not always easy, and it does present certain challenges, but it can also give you the room you need to sort out your finances. If you are in a situation where you are considering bankruptcy, understanding what is and is not true about the process can help you more clearly weight your options.
12 misunderstandings about bankruptcy in New York City
1. My credit will be ruined
Bankruptcy certainly will not help your credit score. However, many people are hit with credit card offers as soon as their bankruptcy clears the courts. The offers are for very high interest rate cards, and ones that should probably be avoided, but credit is still available. If you need to buy a car or something important, you should still be able to do so.
2. I will be debt free after Chapter 7 bankruptcy
Most of your debts will be forgiven in a Chapter 7 bankruptcy, but not all. Things like child support, student loans and alimony will likely still exist after filing bankruptcy. You will be in a better position, but may not be completely free and clear.
3. Everyone will know about my bankruptcy
Unless you are a celebrity or high profile business person, your bankruptcy is unlikely to be plastered across the papers. Yes, financial institutions and others considering you for a loan will be able to see your bankruptcy, but most people in your day to day life will not know unless you inform them.
4. They will take everything
Bankruptcy is meant to help people avoid destitution, not put them into it. While laws vary by state, most people who file bankruptcy still retain certain possessions, such as their main house, an automobile and money in retirement funds.
5. You can run up huge debts right before filing, and wipe them all clear
This is also untrue. Some people try this, and almost all of them get caught. The courts consider this fraud, and will punish you accordingly.
6. Filing bankruptcy is difficult
Filing bankruptcy is not that difficult. In fact, some people even choose to do it without an attorney. However, to obtain the best results, the help of an experienced bankruptcy attorney is certainly recommended.
7. You have to be a deadbeat to file for bankruptcy
If you are in a position to consider bankruptcy, you know this is not true. Bankruptcy is for people who find themselves in a hard situation, usually through a series of unfortunate events. Serious illness, death of a spouse, divorce – these are all situations that push people into bankruptcy.
8. You can only file for bankruptcy one time
If you file for Chapter 7 bankruptcy, you must wait eight years before you can file again. For those who file Chapter 13, it is possible to file more often.
This does not mean you should file repeatedly, but you can if you must.
9. Back taxes are not erased through bankruptcy
It is actually possible to file for tax bankruptcy. However, the rules are complex and you must follow all of them to get a complete tax discharge.
10. In the case of marriage, both spouses must file
This depends on your situation. If you and your spouse share the liability for your debts, then it is best to file together. However, if you are solely responsible for a large portion of debt, you can file individually.
11. Bankruptcy will improve my credit rating because it eliminates bad debts
Bankruptcy is not something that will improve your credit rating. As stated before, it will not completely ruin it, but it will stay on your credit report for at least 10 years. Bankruptcy is not intended to be an easy out, but instead a solution when all other options are exhausted.
12. You want to repay some debts, but bankruptcy will prevent you from doing so
While it is true that you must include all your debts in a bankruptcy filing, nothing prevents you from going back later to pay the people or company’s you owed money to.
One of the most important things to remember about filing bankruptcy is that laws are different for each state. When filing in New York, for instance, you should consult a New York bankruptcy attorney. This will ensure the best possible outcome from your filing, and will put you on the road to financial recovery as soon as possible.
photo by taberandrew