I’m always interested in seeing what others are saying about bankruptcy on the internet. Last night, I ran across an article that made my toes curl because it purported to explain the pros and cons about Chapter 7 bankruptcy. I’m not going to link the article (I don’t want traffic going to misinformation), but these myths can be found all over the internet. This is the list of “cons” for Chapter 7 bankruptcy. I’ll break them down for you and talk about truth vs. misconception:
- The negative consequences are long-lasting.
This is kind of a half-truth. Yes, filing bankruptcy is a tough position to be in. But, this article went on to say that “your credit is RUINED for 10 years.” Not true. You can have a 700 credit score one year after filing bankruptcy, if you do it right and rebuild.
- You are going to lose your property.
According to this article, “there’s no way around losing your property. All of your stuff will be sold to pay your creditors.” Um, no. Very few bankruptcies that are filed result in the sale of assets. And, in those cases, it’s more than likely a planned liquidation where you go in knowing which assets are going to be sold. This is one of the benefits of having a bankruptcy attorney help figure out your options and a plan.
- You will have to give up all your credit cards as part of the bankruptcy.
Ok, this one is true. All credit cards get canceled as soon as you file. However, part of rebuilding can include getting secured cards, as soon as 90 days after filing. The main point is that you get a fresh start and you don’t want to revert back to any situations that got you into bankruptcy in the first place.
- It will be nearly impossible to obtain a mortgage for a long period of time.
The article equated this to the credit card issue above. However, this one is false. Unless 1 year after filing bankruptcy is considered a long period of time. If you rebuild (not repair), most people qualify for a new mortgage from a credit standpoint 1 year after filing bankruptcy. You just need a knowledgeable mortgage lender.
- If there is more trouble down the road, your options will be limited.
The article then goes on to say that you can only file Chapter 7 once in a six-year period, which is completely incorrect. It’s actually 8 years, but there are other options for dealing with debt, both inside and outside of bankruptcy.
- Some debts survive bankruptcy.
This is true, but then the article goes on to state that child support, alimony, or student loans cannot be eliminated. This is not entirely true, as there are cases where student loans can be discharged in bankruptcy. It’s fairly rare, but you want to make sure you find out how all of your debts are being dealt with as part of the process.
- It’s embarrassing.
This one has completely incorrect information. It says that “you will have to explain to both a judge and/or bankruptcy trustee what led you to having to file bankruptcy.” Absolutely false. In most Chapter 7 cases, you never even see a judge. The trustee reviews your documents, confirms that the information is accurate, and nowhere in the documents is it stated why you are filing bankruptcy. It may be embarrassing to you because you don’t want to be in the situation or try to explain it to friends and family, but you do not have to sit and be judged for it in court.
In closing, please make sure that you know your rights and options. It’s very frustrating to hear from someone that they avoided finding out their options because of misinformation.
This is just a basic overview and is not legal advice specific to your situation. If you are considering bankruptcy or are feeling overwhelmed by debt, you should speak with an attorney in your area for legal advice. If you live in California or North Dakota and would like to speak with Jen Lee Law regarding your situation, please schedule an appointment on our scheduling site.