No one ever wants to file bankruptcy but, in some cases, it can provide real relief from crushing debt. One of the reasons people are sometimes so hesitant to file is because they believe the many myths surrounding bankruptcy. Here we break down those myths and expose the truth behind them so that anyone considering filing for bankruptcy will know the realities behind the process and how it can help.
1. People Who File Bankruptcy Are Financially Irresponsible
It is easy to think that people have to file bankruptcy simply because they spent too much and do not know how to properly manage their money. The truth of the matter is, though, that the three main reasons for bankruptcy are job loss, divorce, and severe illness. These are things that are not in a person’s control and that have nothing to do with a person being financially irresponsible.
2. Married Couples Must File Together
Contrary to what many people think, married couples do not always have to file bankruptcy together, although there are times when it makes sense that they do. When married couples file bankruptcy together, an assumption is made that both people are liable for the debt. It is common though, for one spouse to have incurred a great amount of debt while the same is not true for their partner. When that is the case, the couple does not have to file bankruptcy together. On the other hand, when the couple has incurred debt together and they are both liable for it, it does make sense for the couple to file together.
3. Bankruptcy Will Ruin Your Credit Forever
There is no doubt that bankruptcy will affect your credit at least temporarily. After filing bankruptcy, it will stay on your credit record for seven to 10 years, although most of the time it is the lesser of those two time periods. It is imperative to understand that bankruptcy will never remain on your credit report permanently. Even though bankruptcy will remain on your credit record for years, there are still things you can do to improve it. For example, in the months following bankruptcy, you can apply for secured credit cards that can help improve your credit score, even though the bankruptcy may still show.
4.You Should Make Large Purchases Before Filing
A Chapter 7 bankruptcy allows the court to discharge certain debt, which means borrowers are not responsible for repaying it. Due to this, many people think that they should make large purchases, or several small purchases, right before they file. Unfortunately, the banks will likely consider this fraud and any debt incurred through fraud will not be discharged as part of the bankruptcy process. Never go on a shopping spree prior to filing bankruptcy, as it will only hurt you during your bankruptcy case.
5. All Debt Is Discharged in Bankruptcy
It is true that bankruptcy can be looked at as a clean slate, but that does not necessarily mean it will not still have black marks on it. Filing Chapter 7 bankruptcy will discharge most unsecured debts, including credit card charges, utility bills, and personal loans. However, not all debt will be discharged during the bankruptcy process.
If you file for a Chapter 13 bankruptcy, on the other hand, you may not have much of your debt discharged at all. Instead, your debts will be restructured during the bankruptcy process so it is easier for you to pay them back.
6. A Person Will Lose Everything in Bankruptcy
It is true that when filing bankruptcy, a person does stand to lose certain assets. The bankruptcy trustee will seize these assets and liquidate them in order to pay at least a portion of the debt back to creditors. Still, filing bankruptcy does not mean you will lose absolutely everything.
Bankruptcy allows for some exemptions, which are as follows:
- Homestead exemption: A home is fully exempt from bankruptcy proceedings unless you have paid the mortgage in full within the past 1,215 days. When that is the case, the exemption is limited to approximately $160,000 of equity.
- Automobile exemption: The automobile exemption allows for up to $1,000 of equity to remain exempt.
- Personal property: Tangible and intangible property including bank accounts, cell phones, jewelry, and more have an exemption limit of $1,000. If you do not own your home, the exemption limit can be as high as $5,000.
- Retirement accounts: Retirement accounts have a very high exemption level of up to $1,000,000.
In addition to these exemptions, wages are exempt if you are considered the head of your household.
7. You Will Not Lose Anything in Bankruptcy
Just as some people think they will lose everything in bankruptcy, others think they can file bankruptcy and not lose anything. Unfortunately, that is not true. Again, to pay creditors in a Chapter 7 bankruptcy, the trustee will attempt to liquidate certain assets. Due to this, you will likely lose at least some of your assets after you file bankruptcy. On the other hand, if you file a Chapter 13 bankruptcy, you likely will not lose anything in bankruptcy because your debts are restructured so that you can pay at least a portion of them back, if not all of them.
8. You Do Not Need a Florida Bankruptcy Lawyer to File for Bankruptcy
Technically speaking, you are not required to work with a Fort Lauderdale bankruptcy lawyer when filing for bankruptcy. However, it is always recommended that you do. Without proper representation, you may file for the wrong type of bankruptcy, incorrectly cite proper exemptions, or be unable to defend against an action that seeks to deny the discharge of your debts.
If you are struggling with debt and need relief, our skilled attorneys at Loan Lawyers can help. We have helped thousands of people successfully file for bankruptcy and can advise on the best type of bankruptcy for your case. If you are denied a discharge, we will also defend against it and always give you the best chance of success. Call us today at (954) 807-1361 or contact us online to schedule a free consultation and to learn more about how we can help.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.