With job growth slowing and pandemic-era protections expiring, a wave of Americans may be edging toward bankruptcy. Before you panic, BILLSHARK busts seven of the most common bankruptcy myths.
Even if Congress stops dragging its collective feet and passes a slimmed-down stimulus package, it’s likely to be too late for many Americans. Job growth has slowed every month since June, coronavirus infection rates are soaring, and all the protections that were put in place in the spring—such as extended unemployment, moratoriums on foreclosures and evictions, and the Payroll Protection Plan—have either expired or are about to.
All this will lead to a wave of Americans who file for bankruptcy not seen since at least the Great Recession of 2008-09. If you may be edging toward this category, BILLSHARK wants to offer some words of comfort, by way of busting some common bankruptcy myths.
1 Bankruptcy Ruins Your Credit Permanently
Bankruptcy remains a part of your credit report for 10 years, but within months of finalizing the action, your credit score begins to recover. This is because your debts have been cleared, so your debt-to-income ratio immediately improves.
You will need to carefully rebuild your credit by ensuring all remaining bills are paid on time. You can also apply for secured credit cards, for which you pay a deposit.
“Usually, about six to 12 months into it, you can get a regular credit card and drop the secured card, since the secured card can be expensive,” said Lita Epstein, author of The Complete Idiot’s Guide to Personal Bankruptcy.
You may have trouble buying a house or car in the seven-to-10 years following a bankruptcy, but it’s not impossible. Some people even manage it within two years of filing. The catch is you’ll pay a much higher interest rate than you would without a bankruptcy on your record.
2 You’ll Lose Everything You Own
Each state has laws about what is exempt from seizure during bankruptcy, but in general, you’re allowed to keep your home if you’re current on your payments, certain household goods, clothing, and at least one car. Other typical exemptions include machinery, tools, retirement plans, rental property, pets, worker’s compensation, personal injury claims, and more.
“For most people, they’ll pass through a bankruptcy case and keep everything they have,” John Hargrave, a bankruptcy trustee in New Jersey, told Bankrate.
If you have tangible assets, however—luxury cars or boats, for example—they may be seized to help pay down your debt.
3 You Won’t Qualify
Chances are, you do. The Founding Fathers included the option of filing for bankruptcy in the Constitution, and unless you’ve previously filed for bankruptcy in the last couple years, anyone who is struggling to pay bills is entitled to file, provided they meet certain conditions. A bankruptcy attorney can help you determine whether you qualify.
4 It’s Hard to File for Bankruptcy
It’s actually fairly easy and not terribly costly to file for bankruptcy. Most bankruptcy attorneys don’t charge for an initial consultation. They will charge you a flat fee, along with certain court costs, to handle your case, which averages between $1,200 and $4,000 around the country. They will then lead you through the process and handle the paperwork for you.
You will also be required to complete credit counseling before filing, although this can be done virtually.
5 All Your Debts Will Be Wiped Out
No. Bankruptcy will discharge your medical debt (the top reason Americans file for bankruptcy, by the way), credit card balances, and personal loans. Student loans are almost impossible to discharge in bankruptcy unless you can prove hardship. And you will still have to pay any recent income taxes and all child-support and alimony. Criminal fines and restitution cannot be discharged.
And anyone who plans to file for bankruptcy and therefore goes on a wild spending spree in the months before filing may find this disqualifies them from being able to file at all. They could also potentially be charged with attempted fraud.
6 Only Failures and Deadbeats File
People who have managed their finances responsibly for years can encounter situations beyond their control:
Staggering medical bills not covered by this country’s inadequate insurance structure
Sudden job loss, as we saw in the Great Recession and are experiencing in the current pandemic
Divorce
Weather-related incidents, such as hurricanes, flooding, and wildfires
Of course there are a handful of individuals who take advantage of the system. But several studies have shown they are few and far between.
7 Everyone Will Know You’ve Filed
Most of those who file for bankruptcy nevertheless feel a certain amount of embarrassment and even shame about having to take that route. But unless they’re famous, or put it out on social media, it’s likely no one will ever find out, unless they scour the list of local bankruptcy filings every day.
One of the biggest advantages of filing for bankruptcy is that all your creditors are notified of the pending filing. And any actions they’ve been taking to induce you to pay (phone calls, garnishments, legal actions, even repossessions and foreclosures) must stop immediately. The peace of mind that results is well worth the cost of filing.
So if you’re struggling, it makes sense to look into taking this entirely legal step.
And if you’re having trouble paying your bills, why not let BILLSHARK review them for free? Our expert negotiators have saved our clients thousands!
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Frequently Asked Questions
How long does bankruptcy stay on your credit report?
Bankruptcy remains on your credit report for 10 years. However, your credit score begins to recover within months of finalizing the action, because your debts have been cleared and your debt-to-income ratio immediately improves. You can rebuild credit by paying all remaining bills on time and using a secured credit card.
Will I lose everything I own if I file for bankruptcy?
No. Each state has exemption laws, but in general you can keep your home if you’re current on payments, certain household goods, clothing, and at least one car. Other typical exemptions include tools, retirement plans, rental property, pets, and personal injury claims. Tangible assets like luxury cars or boats may be seized to help pay down debt.
How much does it cost to file for bankruptcy?
Filing is fairly easy and not terribly costly. Most bankruptcy attorneys don’t charge for an initial consultation. They charge a flat fee plus certain court costs, which averages between $1,200 and $4,000 around the country. The attorney leads you through the process and handles the paperwork, and you must complete credit counseling before filing.
Which debts cannot be discharged in bankruptcy?
Bankruptcy discharges medical debt, credit card balances, and personal loans. However, student loans are almost impossible to discharge unless you can prove hardship. You will still have to pay any recent income taxes, all child support, and alimony. Criminal fines and restitution cannot be discharged at all.
Will everyone find out that I filed for bankruptcy?
Unlikely. Unless you’re famous or share it on social media, it’s likely no one will find out, unless they scour the list of local bankruptcy filings every day. Filing also notifies all your creditors, so collection actions like phone calls, garnishments, repossessions, and foreclosures must stop immediately.
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Bankruptcy myths debunked: how filing affects your credit, what you keep, the cost, which debts clear, and who can file.
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With job growth slowing and pandemic-era protections expiring, a wave of Americans may be edging toward bankruptcy.
Even if Congress stops dragging its collective feet and passes a slimmed-down stimulus package, it’s likely to be too late for many Americans.
All this will lead to a wave of Americans who file for bankruptcy not seen since at least the Great Recession of 2008-09.
Bankruptcy remains a part of your credit report for 10 years, but within months of finalizing the action, your credit score begins to recover.
You will need to carefully rebuild your credit by ensuring all remaining bills are paid on time.
You may have trouble buying a house or car in the seven-to-10 years following a bankruptcy, but it’s not impossible.
Each state has laws about what is exempt from seizure during bankruptcy.
“For most people, they’ll pass through a bankruptcy case and keep everything they have,” John Hargrave, a bankruptcy trustee in New Jersey, told Bankrate .
If you have tangible assets, however—luxury cars or boats, for example—they may be seized to help pay down your debt.
Chances are, you do.
It’s actually fairly easy and not terribly costly to file for bankruptcy.
You will also be required to complete credit counseling before filing, although this can be done virtually.
No.
And anyone who plans to file for bankruptcy and therefore goes on a wild spending spree in the months before filing may find this disqualifies them from being able to file at all.
People who have managed their finances responsibly for years can encounter situations beyond their control.
Of course there are a handful of individuals who take advantage of the system.
Most of those who file for bankruptcy nevertheless feel a certain amount of embarrassment and even shame about having to take that route.
One of the biggest advantages of filing for bankruptcy is that all your creditors are notified of the pending filing.
So if you’re struggling, it makes sense to look into taking this entirely legal step.
And if you’re having trouble paying your bills, why not let BILLSHARK review them for free?.
Bankruptcy remains on your credit report for 10 years.
Filing is fairly easy and not terribly costly.
Bankruptcy discharges medical debt, credit card balances, and personal loans.
Unlikely.
Our experts handle providers for customers and share updates throughout the process.
