When researching whether Bankruptcy is right, many people come across half-truths and myths on the internet that confuse them and lead them astray. To empower people to make the right decision, we confront some of the most powerful myths surrounding bankruptcy. Contact our firm if you have questions.
Myth #1: Bankruptcy Permanently Ruins Your Credit
Although your credit will definitely take a hit, the reality is that many people bounce back from bankruptcy after a couple of years. Of course, everything depends on whether you can build credit effectively. If you continue to default on debt, then you’ll never get out of a hole.
Many people begin the credit repair process by taking out a secured credit card or an unsecured card if they can get one. Use it responsibly—never go over the limit and pay it off in full each month. After 12-18 months, you can ask for a credit limit increase and continue to use it responsibly. After two years, many people have pulled their score up into the 700s.
Myth #2: You Can Eliminate All Debt in Bankruptcy
Not exactly. You can eliminate certain debts using bankruptcy. For example, you can typically wipe:
- Credit card debt
- Personal loans
- Medical debt
- Some court judgments
- Old tax debt
However, you can’t get rid of everything. Secured loans, for example, are backed by an asset. Your car loan is an example. Your lender’s right to repossess the vehicle isn’t changed by your bankruptcy filing, so you can lose the car. The same is true of a home mortgage.
Myth #3: You Can’t Discharge Student Loans
There’s some truth to this. Discharging student loans is very hard. Still, it’s possible if we can convince a judge that you’ve made a good faith effort to pay back the loans but can’t maintain a minimal standard of living.
Myth #4: You Can Only File Bankruptcy if You Have No Income
Most people who file are working. It’s simply unrealistic for them to pay back all their debt, so they meet with us to discuss whether bankruptcy is right for them.
There are really two consumer bankruptcies: Chapter 7 and Chapter 13. To qualify for Chapter 7, you need to pass a means test. This will look at your income and compare it to the median income for your state. If you are at or below the median, you can file. If you’re over, we need to take a closer look at your expenses.
Myth #5: You Can Only File Bankruptcy if You Have No Assets
You can file even if you own a home, car, vacation properties, and other assets. These do not prevent you from filing.
There is an important consideration, however. When filing for Chapter 7, you need to check if your property is exempt. If not, then the trustee can sell it and use the proceeds to pay your creditors.
Every state has its own exemptions, and clients in New York and New Jersey can choose their state’s exemptions or the federal exemptions. In New York, for example, the following are exempt:
- Some equity in your home
- Some equity in a car
- Retirement accounts
- Some personal property
Myth #6: You Can’t Get a Mortgage after Bankruptcy
Again, there is a kernel of truth here. It’s true you probably can’t immediately get a mortgage after filing for bankruptcy. However, we’ve seen clients who commit to rebuilding their credit qualify for mortgages after two years.
Filing on Your Own
You have this option, but filing without a lawyer’s help comes with huge risks:
- You might file the wrong type of bankruptcy and lose assets.
- You might fail to disclose debts or assets, so the judge dismisses your petition.
- You could face an investigation for bankruptcy fraud if you intentionally fail to report assets.
- You have to start the process all over again or possibly wait years to file again.
We will also guide you throughout the entire process, answering your questions along the way.
Contact Our Bankruptcy Lawyer with Questions
We believe in empowering our clients to make the choices that work for them. To that end, we offer a consultation where we can answer any questions you have. Please call us today, 973-453-2838 to learn more about your legal options.