Mike Sullivan, the director of education at nonprofit credit counseling agency Take Charge America, said that not everyone is aware of the wider repercussions of filing for bankruptcy. “For some, bankruptcy is the best option, but few people truly understand the ins and outs of filing.”
He listed seven common beliefs that are held by many people, but which are actually incorrect:
- Bankruptcy will erase all debt. Many types of debt will be cancelled out by filing for bankruptcy, but some will not. Student loans, child support, alimony, criminal restitution and debts resulting from fraud will all still stand in spite of a bankruptcy filing.
- Bankruptcy causes people to lose everything. Although the laws are different state by state, each has exemptions that allow people to keep assets such as homes, cars, household goods and retirement savings.
- Married couples must file for bankruptcy together. If debt is in one person’s name only, couples may not have to file jointly. Only people with joint accounts or debts will need to file together.
- People have to have a lot of debt to file for bankruptcy. In fact, there’s no minimum amount of debt required to file for bankruptcy. However, there are costs involved with filing that may make an impact on whether or not it’s a wise choice to file for bankruptcy. The cost of filing ranges from a few hundred to a few thousand dollars.
- Bankruptcy causes people to lose their jobs. There is a federal law that prohibits employers from firing employees because of a bankruptcy filing. However, bankruptcy negatively affects your credit score, which may make it more difficult to find a new job if you are not already employed.
- Creditors will keep calling even after filing for bankruptcy. Once a person has filed for bankruptcy, it’s illegal for collection agents to contact them any longer.
- Bankruptcy is a way of racking up debt and never having to pay it back. The legal system considers this fraud. Consumers should never make purchases they cannot afford and plan to get out of paying for by declaring bankruptcy.
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