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8 Myths About Bankruptcy Debunked

Jun 25, 2024 | Bankruptcy

The social stigma that surrounds the topic of bankruptcy tends to scare people out of pursuing it as a means to financial relief. Despite what you might have heard about this legal process in the past, it’s actually an extremely useful tool. The purpose of this blog is to debunk some of the most common myths about bankruptcy to help clear up misconceptions and provide clarity on how it can be a viable solution for those up to their head in debt. Let’s dispel some of these myths and discover how bankruptcy can offer a path to a debt-free life.

1. My Credit Score Will Be Damaged Forever

This is one of the most common beliefs about the bankruptcy process, but it simply isn’t true. Long-term, bankruptcy can actually help improve your credit score by eliminating your debts. The keyword here is “long-term.” It won’t happen overnight. Typically, you can work towards credit improvement between 12-18 months after filing for bankruptcy. Which, in the grand scheme of things, is not that long!

2. Bankruptcy Means I Have Failed

Wrong! Bankruptcy does not mean you have failed. It simply means that you need a do-over. In 2023, there were 452,990 bankruptcy filings. That’s a lot of filings. You want to know why? It’s a common thing to do when you’re struggling to repay debt. It doesn’t reflect your success in life and it doesn’t mean that you can’t bounce back; in fact bankruptcy is often the first step toward bouncing back stronger than before. It is a legal and practical tool that allows you to regain control of your financial future.

3. I Can Never Buy A House Again

You probably saw this coming, but this isn’t true! Filing for bankruptcy does not mean you can never buy a home again. Many mortgage companies provide FHA loans to those with poor and fair credit scores, so that is always an option if you’re looking to buy a primary residence after bankruptcy. However, you will have to wait a bit before doing so. This is because a judge has to first discharge or dismiss your bankruptcy. To qualify for an FHA loan, you have to wait 2 years after the discharge or dismissal.

4. Bankruptcy Is Expensive

Bankruptcy isn’t as expensive as you might think; in fact, the costs are often comparable to, or even less than, the fees and interest you’ve accumulated from your unpaid debts. When considering the long-term financial relief that bankruptcy can offer you, the cost of filing and hiring an attorney is a necessary and worthy investment. In California, the average cost of attorney fees for Chapter 7 bankruptcy range from $1,000 to $2500 or slightly more, and the filing fee is $338. It may cost you less than $3,000 to achieve a fresh financial start!

5. Bankruptcy Eliminates All Debts

Don’t fall victim to the misconception that bankruptcy eliminates all debts; it does not. Dischargeable debts are debts that can be eliminated when you file, and not every debt qualifies as one. In Chapter 7 bankruptcy, credit card balances, medical bills, personal loans, past-due rent payments, overdue cell phone bills, utility bills, and more can be discharged. You will still be responsible for secured debts, like mortgages and car loans, if you keep the property. Income taxes and student loans are also non-dischargeable.

6. My Spouse And I Will Both Have To File

You might think that if you’re married, you’re required to file jointly for bankruptcy, but this is not the case. Not only are you able to file on your own, but there are several reasons why it might be necessary. These include the following:

  • All of your finances are separate (and you can prove that).
  • The debts are only in your name.
  • You have a prenuptial agreement in place.
  • Your spouse has already filed for bankruptcy and their debts are not yet dischargeable.
  • You want to ensure your spouse can file in the future.
  • And more.

7. You Can Only File For Bankruptcy Once

While you may have heard through the grapevine that you can only file for bankruptcy once, that’s not the case. There is no limit to how many times you can file for bankruptcy; however, if you file again too soon, you won’t be eligible for another debt discharge in your new case. There is a waiting period that has to expire before you can qualify for additional debt forgiveness. Some of the waiting periods are as follows:

  • Filing Chapter 7 after Chapter 7 – 8 years
  • Filing Chapter 7 after Chapter 13 – 6 years
  • Filing Chapter 13 after Chapter 7 – 4 years
  • Filing Chapter 13 after Chapter 13 – 2 years

8. Bankruptcy Court Will Take Everything I Have If I File

If you file for bankruptcy, know that you aren’t going to be left in the cold with nothing to your name. The bankruptcy courts don’t take away your personal belongings. In most Chapter 7 bankruptcy cases, you are giving up unnecessary or extravagant property, not the clothes off your back and the shoes on your feet. You might be eligible for certain bankruptcy exemptions as well. For example, California’s 704 bankruptcy exemptions list household items, jewelry, heirlooms, tools, materials, and other personal effects as exemptions. The process of making sure these items are exempt in your bankruptcy case can be tricky, which is why it’s important to work with a seasoned bankruptcy attorney.

How Equal Justice Law Group Can Help

We understand that even after reading all of that, you might still be hesitant to pursue bankruptcy; however, our skilled bankruptcy attorney, David Foyil, can show you that bankruptcy is truly a viable tool for achieving a clean financial slate. If you are drowning in debt, we can help you understand your legal options, explain the next steps, and address your questions and concerns. We promise we won’t let you face this challenging time on your own. Gain the peace of mind you’ve been searching for by calling Equal Justice Law Group today to request a consultation.

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