And the lesson is…don’t take financial advice from a fashion magazine?
If you have followed me at all, you may notice that I tend to read a lot and like to write or do videos about the bad information I find on the internet. So, here we go.
An article titled, “6 Important Things to Consider Before Filing for Bankruptcy” sounds like it would be right up my alley. Let’s take a look.
#1 – It Affects Your Credit.
Great. That statement is true. However, the explanation that followed got it wrong. The article states that it will affect your credit negatively and will be “significant and swift.” If you already have bad credit, filing bankruptcy makes your score go up. Read that again.
It gets worse. The article then says you are “required by future employers to know of your bankruptcy status.” First of all, that statement doesn’t even make sense. Second, it totally depends on the state you are in, the application, and the type of job you are applying for at the time. Finally, most employers prefer that you not have overwhelming debt distracting you from your job. In fact, qualifying for a job based on credit is often resolved through a bankruptcy filing because now the problem debts have been handled.
#3 (but actually #2) – Different Types of Bankruptcy.
Starts out ok. There are two main types of bankruptcy for consumers, Chapter 7 and Chapter 13. Then, it goes downhill fast. “You will need to sell off non-exempt assets, though, to pay off your debtors.” Where should I start?
First, you don’t sell off non-exempt assets. A Chapter 7 Trustee is assigned to your case when you file and they are the ones who would be responsible for selling non-exempt assets.
Second, YOU are the debtor. You are attempting to deal with your creditors. So, selling your non-exempt assets to pay your debtors makes absolutely no sense. The person who files bankruptcy is a debtor, the people and companies you owe money to are creditors.
Third, most Chapter 7 cases do not involve the sale of assets. An attorney can advise you on assets that may be at risk and often, a different chapter of bankruptcy is selected if there are assets you want to protect from sale.
#3 (the second #3 on the list) – Not All Debts Will Be Wiped Out.
True statement, but the rest is wrong. Yes, child support is not discharged in bankruptcy. However, taxes are often discharged in bankruptcy. Student loans are an interesting area because some can be discharged, but a lot cannot be at this time.
The second paragraph talks about creditors being able to challenge the debt you are discharging and that the court can rule in their favor so that the debt is not discharged. This is extremely rare and it’s usually when some sort of fraud or intentional misrepresentation is involved. This is not your average credit card debt that most people discharge in a Chapter 7.
#4 – It Isn’t a Quick Fix.
Not sure anyone thinks bankruptcy is a quick fix, but it’s often the most efficient fix. This section also talks again about losing assets. Luckily, it does say to talk to a lawyer to make the right decision, which is excellent advice.
#5 – Your Income Matters.
Hmmm. Yes, your income matters when determining if you are able to come up with a plan to pay off debt, whether that’s in bankruptcy or not. Your income matters if you are trying to qualify for Chapter 7 and have consumer debts. Your income comes into play in a Chapter 13 when we determine how much you have to pay towards debt. But the last sentence, “The more you make, the better off you will be in bankruptcy…” is wrong. Timing of the bankruptcy filing when you have lower income can help qualify for Chapter 7 or have a lower payment in Chapter 13. Talk to a lawyer, please.
#6 – There Are Other Ways.
Of course there are. But, which way is best for you and your goals? Because negotiating with 10 creditors and keeping track of 10 payment plans may be more stress than it is worth. Consolidation can also be helpful, but can also negatively affect your credit score. There are also a lot of companies out there willing to take a lot of your money to put you in a debt settlement program, which is actually worse on your credit than bankruptcy. But, no one tells you about that feature.
I promise to get off my soapbox now. Here’s the link to the article.
This is just a basic overview and is not legal advice specific to your situation. If you have questions about your rights when it comes to debt and credit, 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.