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!
Share:
Billshark · Bill Negotiation Experts Helping consumers and small businesses stop overpaying on recurring bills.
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.
7 Bankruptcy Myths is a Billshark page. It can help you with your bills and your choices, and it can show you how to save.
Bankruptcy myths debunked: how filing affects your credit, what you keep, the cost, which debts clear, and who can file.
Use this page to learn about Billshark. Then go to the part of the site that fits what you need. Small steps add up. You can save a lot over time.
We share this page to help you make sense of your monthly bills, your choices, and what to do next. Keep this page handy. Ask us if you get stuck.
This page links you to more help from Billshark. Use it when you want more detail or a clear next step. You can save a lot over time.
Got a question about a bill you pay each month? This page can help you find the best answer. Read on to learn more. Small steps add up.
Read each part of this page at your own pace. If you need more help, go on to a guide on your topic. It is free to read. Keep this page handy. Ask us if you get stuck.
We put facts and tips in one place. This makes it easy to learn about the bills you pay at home. We are here to help. It only takes a few minutes.
This page can help with real questions. You can learn about your plan, your account, and what you pay each month. Small steps add up. You can save a lot over time.
Use the menu and the links to go from a big question to the facts that fit your own needs. Keep this page handy. Ask us if you get stuck.
We keep things short and clear so you can choose well. You can then read more if you want to. It only takes a few minutes. You are in the right place.
The links on this page help you weigh your choices. They also help you see what you pay and what to do next. You can save a lot over time.
Our goal is to help you spot the bills you pay each month. We also share smart ways to keep them low. Ask us if you get stuck. Read on to learn more.
Come back to this page when you have a new question. It will still be here to help with bills and savings. You are in the right place. It is free to read.
We link the small choices you make each day to the big picture. That means your budget and what you spend at home. We make it easy for you.
Each part of this page helps you see what you need. It may be help with a plan, your account, or a good read. Read on to learn more. Small steps add up.
Use what you learn here to plan your questions. Look at your choices, then take the next step when you are ready. It is free to read. Keep this page handy.
Our pages link to each other. That way, you can find more help and still keep track of what you came for. We are here to help. It only takes a few minutes.
This page makes it easy to find the key facts first. Then you can pick a plan or make a change with less stress. Small steps add up. You can save a lot over time.
Good facts help you see why a bill went up. They also show you what to check before you call or reply. Keep this page handy. Ask us if you get stuck.
This page puts the key facts in one place. It can help you talk with a company about your bills and how to save. It only takes a few minutes. You are in the right place.
Our other pages explain the words you see on a bill. They also help you weigh the pros and cons of each plan. You can save a lot over time. We make it easy for you.
Our tips focus on real choices you can make. Start with the basics, then read a more detailed guide if you need one. Ask us if you get stuck. Read on to learn more.
This page is one of many that we share. Together they cover home costs, the firms you pay, and how to get help. You are in the right place. It is free to read.
Take your time and read this page first. It helps you see your choices and find out what to read next. We make it easy for you. We are here to help. It only takes a few minutes.
We set this page up so you can compare and keep reading. You will not need to hunt for what you want. Read on to learn more. Small steps add up. You can save a lot over time.
Monthly bills come with rules, terms, and fine print. This page helps you find the parts that count for you. It is free to read. Keep this page handy. Ask us if you get stuck.
Our pages give you a clear view of what you pay each month. You can then pick the plan or guide you want. We are here to help. It only takes a few minutes.
Some of our guides cover the basics. Others go into detail on one company or one type of bill. Small steps add up. You can save a lot over time. We make it easy for you.
It pays to read first and act later. This page links you to the next guide if you want to learn more. Keep this page handy. Ask us if you get stuck.
We share guides that help you make sense of your bills. They show your choices and the best next step. It only takes a few minutes. You are in the right place.
Want more detail on a bill, a plan, or your account? Check this page against the links we share here. You can save a lot over time. We make it easy for you.
We group our pages by topic to keep things simple. This helps you stay on track as you read about your costs. Ask us if you get stuck. Read on to learn more.
A bit of background goes a long way. It helps you spot what counts before you check a bill, change a plan, or call us. You are in the right place. It is free to read.
This page is part of our help library. It gives you clear facts and links so you can keep on reading. We make it easy for you. We are here to help.
Your needs can change, so come back any time. Our other pages can help you look into a new cost or plan. Read on to learn more. Small steps add up. You can save a lot over time.
We laid out this page to help you get the facts and compare them. You can then choose your next step with ease. It is free to read. Keep this page handy.
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.
