With a slow economic recovery and persistently high unemployment rates, bankruptcy may be a good option for some people. Since each person's situation is unique, perhaps the one universally true statement about personal bankruptcy is that it is not right for everyone. Some individuals who might want to file for bankruptcy really should not, while many who are fearful of bankruptcy should seriously consider it.
U.S. News and World Report published an article during debunking five common "bankruptcy myths." These myths are worth examining. Some of them work to inadvertently encourage a person who should not file for bankruptcy, while others may work to deter people who would benefit from bankruptcy protection.
Myths That Wrongly Discourage People Who Would Benefit From Bankruptcy Protection:
Bankruptcy Will Ruin My Credit For All Time. While many people considering bankruptcy probably already have low credit scores, the bankruptcy process could actually help to improve a credit score over time by zeroing discharged balances. A bankruptcy discharge remains on a credit report for seven to ten years, but defaulted accounts with past due balances remain on credit reports for seven years in any event. For many people, having a bankruptcy on a credit report leads to a higher score over time than having 10-15 defaulted accounts.
People Who File Bankruptcy Must Have Seriously Messed Up Their Lives. This may be the most pervasive - and incorrect - bankruptcy myth. Anyone can fall on hard times, whether from getting laid off, suffering an illness, or being forced to deal with a serious injury. We explained how bankruptcy brought on by medical bills is actually quite common.
Myths That Might Wrongly Encourage People Who Should Not File for Bankruptcy:
Bankruptcy Will Make All My Debts Go Away. Even a Chapter 7 liquidation case will not discharge all of a person's debts. Certain types of debts are excluded from discharge. Some of these debts or obligations, such as child support or spousal maintenance, serve a public function and therefore cannot be discharged. Taxes and other government debts cannot be discharged, although there are some exceptions. Other debts, such as student loans, are not dischargeable thanks to some cunning lobbying by banks and other financial companies.
Bankruptcy Will Solve All My Problems. Bankruptcy protection is not always an easy way out. The process requires a court appearance, credit counseling, valuation of all assets and disclosure of all liabilities, including loans from friends and family. In some cases the court may undo recent financial transactions, close associates may be brought into the case, and certain property may be required to be turned over to the court appointed Trustee. Only a competent bankruptcy attorney can see through these issues and warn a person to stay out of bankruptcy if they have more to lose than to gain.
I Can Spend All I Want Right Before I File for Bankruptcy! No. A complex set of laws makes certain cash advances or purchases on credit right before a bankruptcy nondischargeable. In addition, certain repayments of debt right before a bankruptcy (but in some cases even a whole year before a bankruptcy) can be reversed, the funds brought under the control of the court, and then split evenly among all creditors. Thus, paying back $10,000 to mom 11 months ago could spell a whole lot of trouble for mom. She could be taken to court and forced to return the money to the Trustee.
Boston bankruptcy attorney Dmitry Lev, has spent over fifteen years working in the financial field, and he brings that experience to his clients, guiding them through the often complicated and stressful personal bankruptcy process. Contact us online or at (617) 556-9990 to set up a free and confidential consultation.
More Blog Posts:
Boston Economy Leads to Job and Bankruptcy Worries, Boston Bankruptcy Attorney Blog, November 21, 2011
Bad Housing Market Leads to Decrease in Boston Personal Bankruptcy Filings in 2011, Boston Bankruptcy Attorney Blog, October 6, 2011
Bankruptcy Laws - not stimulated by stimulus, Boston Bankruptcy Attorney Blog, April 10, 2009