Bankruptcy Misconceptions

There are so many misunderstandings related to filing for bankruptcy. Here are some of the big ones:

1) I will never get credit again.

People who are in debt, largely due to poor use of credit, always feel that they will never get credit again. That is why many people suffer with debt and continue to pay high interest rates for years and years before finally saying “enough”. The truth is, credit will be available shortly after a bankruptcy case is filed. An auto can be financed within days of filing and a mortgage can be obtained after two years from the date of filing.

2) I will lose all of my property in my house.

Bankruptcy law provides for certain property exemptions. That is property that can be kept, free and clear, while still being afforded relief under the U.S. Bankruptcy Code. In Illinois, the state exemptions apply. In the overwhelming majority of cases, the exemption amount exceeds the person’s value in personal property. Thus, a person can file for bankruptcy protection and still keep personal property.

3) Bankruptcy wipes out all debts.

Although bankruptcy will erase the majority of a person’s debts, there are some exceptions. For example, student loans are not eliminated in a bankruptcy case absent a showing of extreme hardship. Recent taxes are not eliminated, nor are child support or maintenance claims. Lastly, debts incurred by fraud can be held to be due and owing despite filing for bankruptcy.

4) I can choose which creditors I’m keeping.

Although you can decide to repay any creditor you want, the creditor still must be listed on your bankruptcy petition. Further, if it’s a credit card, you are going to lose all of your charging privileges. Bankruptcy provides for a fresh start. If you were able to keep different forms of unsecured credit, you would be defeating the purpose of the fresh start.