Today, many people have a misunderstanding of bankruptcy. Here are some of the misconceptions with bankruptcy:
People filing for bankruptcy are financially irresponsible. This is not the case for most individuals. During harsh economic times like today, many people are running into more serious personal problems such as losing their jobs, going through divorce, or suffering from a serious illness.
According to the Bureau of Labor Statistics, more than 5.2 million citizens have been unemployed for six months or longer. Meanwhile, a survey conducted by the Center of Disease Control found that 20% of citizens had trouble paying for their medical bills in 2010.
- Filing Bankruptcy will allow all past debts to be forgiven. Not all types of debts are discharged by bankruptcy. Some types of debts that cannot be discharged are: child support, spousal support, and compensation for a crime committed. Another debt that most likely will not be forgiven are student loan debt, unless you can prove an extreme hardship such as permanent disability. Lastly, it is possible to have your tax debts discharged depending on your specific circumstances. However, it is essential that your tax returns were filed prior years.
- Everything you spend before filing bankruptcy will be cleared. People assume that they can max out their credit cards before filing bankruptcy and then have those debts cleared. Courts have found this type of act to be considered fraud, and debt created with fraud will not be discharged.
Filing Bankruptcy will permanently ruin your credit. People who filed bankruptcy are often surprised how quickly they are eligible to apply for a new credit card.
It is highly recommended that people apply for secured credit cards and make on-time payments in order to rebuild their credit. After six to twelve months, a person may be eligible for a regular credit card and will allow them to drop the secured credit card.
Depending on the circumstances, it is possible to qualify for a mortgage within 2 to 4 years of bankruptcy.
- Bankruptcy is not the cure-all solution for everything. There are different types of bankruptcy that one can file. Chapter 7 bankruptcies will discharge most debts but it is possible that you could lose your property. There is also a Chapter 13 bankruptcy that will reduce or reorganize your debt and will allow you to keep your home but will require you to make continuous payments for up to three to five years.
If you are thinking about filing for bankruptcy and would like more information, contact an Orange County Bankruptcy Lawyer at 1st California Law for a free attorney consultation.