Over the years, there have become many myths and legends about filing bankruptcy that have filtered into American culture. With the introduction of the Internet there has become a new outlet to perpetrate these myths most of which are completely untrue. I don’t know how so many of these urban legends got much traction, but I suspect most of them come from the credit and debt collection industries. No one knows better than these people that upon filing for bankruptcy they will no longer be able to collect or even contact the debtor anymore because of the automatic stay. When I was a kid, my grandpa used to always say to question with boldness and always look for who benefits when something is told to you. I believe this is no different, the only one that benefits from someone not filing bankruptcy is the creditors and the debt collectors who receive commission based on the amount of money they collect.
Many of these myths are so outrageous I don’t know how they have stuck around so long. One of the most common ones that can be heard is that after filing for bankruptcy you will never get credit again. This is so far from the truth when you consider how opportunistic creditors are. Just a few years back, you probably could have gotten a credit card for your dog. The truth to this one is creditors know that most people after filing Chapter 7 bankruptcy will be virtually debt-free making them a pretty good risk to get credit again. It is true, that initially creditors will charge higher interest and fees for someone post bankruptcy. It’s best for someone immediately after filing to take some time and enjoy the stress free life of having no bills. Someone should take this time to slowly rebuild their credit and then get credit when the rates and fees drop to reasonable rates.
Another one that sounds crazy is, a person filing Chapter 7 bankruptcy will lose everything they own. While Chapter 7 is otherwise known as a liquidation Chapter, Congress implemented bankruptcy exemption laws to protect a generous amount of a person’s property and allow them to get a fair fresh start. If they took everything away from an individual, it would be virtually impossible for them to ever get back on their feet and this was not the intent of Congress when bankruptcy was created.
The one that is the closest to the truth is that filing for bankruptcy will destroy your credit for 10 years. The truth is, the Chapter 13 bankruptcy will stay on one’s credit report for up to seven years and a Chapter 7 will last up to 10 years. What most people don’t consider is how a person’s credit already was prior to filing. Most people that need to file for bankruptcy already have amassed many late pays, defaults and no longer have any credit available to them. That’s why they make the decision to file. Considering, information, a person’s credit is already in the tank. Many people don’t understand is this doesn’t mean that a person can’t get credit after filing for bankruptcy. Creditors will look at a person’s ability to pay and when someone has no debt and is still employed they look like a pretty good risk.
The bottom line is don’t believe everything you read or what someone tells you. Always consider the source of where the information is coming from before you believe it. Everyone should do their own research to make their own decision of whether or not they need to file for bankruptcy.