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If you are contemplating the possibility or prospect of filing for bankruptcy, you likely have in mind a number of myths about the process and procedure of bankruptcy. (You may also have some basic facts about bankruptcy, but desire more before you make a final decision as to whether or not you want to proceed with such an action.) Through this article, the basic facts and some common myths about bankruptcy are discussed.
1. One of the most common myths associated with bankruptcy is that a bankruptcy permanently damages your credit history. While it is true that a bankruptcy will appear on your credit history for a period of seven to nine years, it does not remain on your credit report or part of your credit history indefinitely.
2. Another of the common myths associated with bankruptcy is that all of your debts simply “go away” or “vanish” after you have filed for relief. In point of fact, not all of your debts will be discharge through a bankruptcy action. Indeed, in recent times, lawmakers have made it more difficult for consumers to rid themselves of certain types of debt through the bankruptcy process. For example, debt that people have amassed on credit cards is no longer easy to dispose of in bankruptcy court.
3. One of the myths (or confusions) associated with bankruptcy centers on the different between secured and unsecured debt. Many people assume that all debt is the same. In point of fact, when it comes to seeking and obtaining bankruptcy relief, there is a significant different between secured and unsecured debt. An example of unsecured debt is that debt that you accrue on a typical credit card. As an example, if you charge food, gasoline and the like on your credit card, the balance on your credit card is considered unsecured debt.
As an aside, you do need to keep in mind that there are some credit card charges that end up as secured loans. In other words, if you let the credit card become delinquent, certain items that you have purchased on a credit card may be repossess
ed. An example, of such a card is a credit card provided by a retailer that sells appliances and electronics. In many instances, these stores do take a lien interest in the property sold to you. And, if you end up defaulting on the credit card, they can and oftentimes do repossess the property in question.
A prime example of secured debt is the mortgage on your home. The amount of money that you have been provided in the form of a loan is “secured” by your home itself. In other words, if you default on the loan, the lender has the ability to foreclose on the home and take your house as a means of satisfying what is due and owing on the loan itself. Another example of a secured loan would be the loan on your motor vehicle. As with the house, if you default on your car loan, the lender has the chance to repossess the vehicle to satisfy the outstanding balance on the loan itself.
In bankruptcy, when it comes to a secured loan, you have the ability (in most instances) to execute what is known as a reaffirmation agreement. Through a reaffirmation agreement you have the ability to continue to make payments on your mortgage or car payments and you will be able to keep the residence or the automobile.
4. Another of the common myths associated with the bankruptcy process is that it is easy. Many people think that they can trot off to the bankruptcy courthouse on their own and file a petition without a hassle. In reality, consumer bankruptcies can be very complicated. Therefore, in the vast majority of cases, a consumer is well served obtaining the assistance of a qualified lawyer to assist with the case. An experienced lawyer can and usually does make a world of difference when it comes to this type of legal relief for a consumer.
By understanding the myths and facts associated with bankruptcy, you will be able to determine if bankruptcy is the best option for you. By understanding the facts of bankruptcy, you will have taken the first step on the road to bringing order to your financial house.
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