Calling the Bluff on Bankruptcy’s Bad Reputation

When I started as a bankruptcy paralegal several years ago I went into the job with preconceived notions about bankruptcy, the people who file, and how it affects credit. It didn’t take long to realize that my perceptions were way off base. I want to share some of that knowledge with you here so that perhaps we can change the tide in how people think about bankruptcy. I’ll start by sharing information that I thought was true, then explaining what really happens.

1. Bankruptcy is a terrible choice for anyone to make. This remark is almost laughable to me now after seeing thousands of people turn their lives around with bankruptcy. The truth of the matter is that in some situations filing bankruptcy is the best decision a person can make. By going bankrupt an individual with overwhelming debt can find a financial fresh start in less than 1 year.

2. Bankruptcy is only for people with very low incomes. Again I can’t believe I ever thought this was true; maybe someone should have just mentioned 2 little words: Donald Trump. That’s right, the multi-billionaire has filed bankruptcy on his many hotels and casinos numerous times! He may be a hard guy to relate to financially, but it proves a point: even people who many may consider “wealthy” sometimes have to file bankruptcy in order to get their finances in order. In many cases individuals and couples with very high incomes file what is known as a Chapter 13 bankruptcy which consists of a 3-5 year repayment plan where the court allows them to pay back a percentage of their total debt. This is in contrast to a Chapter 7 bankruptcy that in most cases is used for those individuals or couples with low incomes and very little assets.

3. Bankruptcy will ruin your credit forever. This is a common misconception that I really think scares people away from ever considering the help that bankruptcy may give to them. Allow me to explain the truth about what really happens to your credit when you file bankruptcy. When an individual files bankruptcy all of their creditors are notified via US Mail by the bankruptcy court. The creditors then notify the credit bureaus that the specific accounts are under “bankruptcy”. Once the bankruptcy is complete and the debts are erased, the bankruptcy court again notifies the creditors of the progress. Again the creditors notify the credit bureaus that the account balance is $0.00 and the account is marked with “bankruptcy”. The mark of bankruptcy will stay on an individuals credit report for 7-10 years depending on the chapter of bankruptcy that was filed, but that mark doesn’t stop the debtor from rebuilding credit, owning a home, or financing a vehicle.

Don’t believe everything you hear when it comes to bankruptcy. Find advice you can trust whether it be from a friend or family member who has filed bankruptcy before or a local bankruptcy attorney.

Why Filing Bankruptcy Shouldn’t Scare You

You may have heard some negative things about filing bankruptcy over the years, but we all know that not everything you hear is always true. If you are facing an overwhelming amount of unsecured debt like credit cards or medical bills then going bankrupt may be in the best interest of your financial future. Don’t let the negative rumors surrounding bankruptcy scare you away from doing something that could really help you in the long run. Here are just a few reminders of why filing Chapter 7 bankruptcy or Chapter 13 bankruptcy shouldn’t scare you:

1. You aren’t alone – Don’t fall into the trap of thinking that no one else is having debt problems like you are. In this economy that’s just not true. For years people have been struggling with credit card debt, large amounts of medical bills and more recently foreclosure and repossession. Last year alone more than 1 million Americans filed for Chapter 7 bankruptcy to get a financial fresh start by eliminating their unsecured debt. Due to the recession our country has and is still facing it would be surprising if you didn’t know of someone that has had to file bankruptcy to keep afloat.

2. Help is readily available – The great news about looking into bankruptcy now is that at any given time you are not too far away from tons of information regarding bankruptcy. One simple search on the internet will provide you with more information than you ever wanted on how to file bankruptcy and if it is right for you. Not only is the internet a wealth of knowledge, but in some cases bankruptcy attorneys will allow you to meet with them for free initial consultations before you make your decision. If neither of these options appeal to you then maybe you should just start by asking friends or family who you know have filed in the past.

3. The system is on your side – The bankruptcy laws are written for one purpose: to help individuals and married couples get out of debt and find a way to have a financial fresh start in life. The laws are not meant to be abused, which is why there are limits to how many times a person can file in a given number of years, but for the most part the bankruptcy code is on the side of the debtor. The bankruptcy court as a reputation of being fair and open minded to every situation they hear. Don’t think that your situation is too far gone for bankruptcy to help.

If you truly think that going bankrupt could help you and/or your family then don’t hesitate to find out more information. Just remember that you aren’t alone, help is always readily available, and the system is on your side. The bankruptcy process will be over before you know it and in less than 2 years you could be debt free and planning for the future.

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