The term “bankruptcy” has a negative connotation for many people because they have the misconception that bankruptcy can do more harm than good. However, bankruptcy helps hundreds of thousands of people across the country obtain financial freedom. Below, our team at Wadhwani & Shanfeld has debunked the most common myths surrounding bankruptcy.
Myth #1: Bankruptcy Will Ruin Your Credit Forever
This is one of the most common myths told about bankruptcy. Bankruptcy can stay on your credit report for up to ten years from the filing date, but its impact diminishes over time. Having bankruptcy on your credit report doesn’t necessarily mean that it will ruin your credit. In fact, many who file for bankruptcy already have a low credit score.
People are often surprised to see how soon their credit can improve after bankruptcy. Bankruptcy helps individuals get rid of the bad habit of making late payments--therefore, it can help people improve their credit score.
Myth #2: People Who File for Bankruptcy Are Financially Irresponsible
Many people believe that financially irresponsible people are the only ones who file for bankruptcy. However, the financial situation of an individual can change quickly. Many individuals file for bankruptcy after a divorce, job loss, or an unexpected accident that resulted in medical expenses. The financial fallout from the current health crisis has also forced many people to seek financial relief through bankruptcy.
Myth #3: You Won’t Get Loans After Filing for Bankruptcy
The statement above is false. After Congress passed new bankruptcy laws in 2005, lenders are more understanding of economic issues and still grant loans. However, you might get a loan with higher interest rates.
Myth #4: You Can Only File for Bankruptcy Once
You can file for bankruptcy more than once, depending on when you filed and the type of bankruptcy chapter you filed. You can apply for bankruptcy every eight years after applying for Chapter 7 bankruptcy. With Chapter 13 bankruptcy, you can receive a discharge every two years. If you get discharged through Chapter 7, you have to wait six years before obtaining a discharge through Chapter 13. If you obtain a Chapter 13 discharge, you must wait four years before getting a discharge through Chapter 7.
Myth #5: Bankruptcy Discharges All Types of Debt
Unfortunately, bankruptcy doesn’t discharge all types of debt. It can only help you eliminate or reorganize unsecured debts. Unsecured debts include credit card debt, medical bills, personal loans, or any other debt that can’t be liquidated. Secured debt, such as a mortgage or car debt, can be liquidated since the lender can reclaim the item.
Myth #6: You Can File for Bankruptcy After Reckless Spending
Many people think that they can file for bankruptcy after reckless spending. However, courts have ruled that ranking up charges before a bankruptcy filing is considered fraud. This means that a person won’t be able to file for bankruptcy after going on a shopping spree.
Myth #7: You’ll Lose Everything in Bankruptcy
If you are afraid to file bankruptcy because you think you will lose everything, you can have peace of mind knowing this isn’t true. If you want to keep your home, vehicle, and other possessions, you can file for Chapter 13 bankruptcy. Chapter 13 bankruptcy allows you to reorganize your debt into one monthly payment (for up to five years). It essentially makes your payments manageable and will allow you to discharge the remaining debt after your assigned payment period.
Call Our Los Angeles Bankruptcy Lawyers Today!
If you have any questions about bankruptcy and how it can benefit or hurt you, our team at Wadhwani & Shanfeld is here to help you. We have successfully helped over 20,000 people get back on their feet after a financial crisis. Our bankruptcy attorneys are committed to our clients’ best interests, so we help them find real solutions to challenging financial problems. Let our team analyze your situation and find a debt relief solution that works best for you.
Contact our Los Angeles bankruptcy attorneys today at (800) 996-9932 to schedule a case review!