The Top 10 Things to Know about Bankruptcy
1. Although bankruptcy is a public legal proceeding, it is unlikely
that anyone other than your creditors will ever know that you filed.
Unless you are already a subject of public interest, it is unlikely
that the news media will pay any attention to your filing.
2. There are two types of bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 cancels many of your remaining debts, whereas Chapter 13
requires up to a five-year repayment plan and only eliminates debts
that are not covered by the repayment plan. Chapter 7 was by far the
most popular method in 2004 and often leaves creditors with nothing.
3. New legislation currently pending in Congress will make it much
more difficult for people filing for bankruptcy to do so under Chapter
7. Furthermore, six months of credit counseling will be required
before bankruptcy can be filed, and money management classes will be
required before any debts are wiped out. Fees associated with these
programs are the filer's responsibility.
4. Chapter 7 does not erase all types of debt. Specifically, child
support, alimony, student loans, and debts resulting from fraudulent
activities cannot be wiped out. Any court judgments against a
bankrupt person for fraudulent activities are also left in place. A
bankrupt individual cannot get rid of back taxes usually, although
there is a concept called "tax bankruptcy" if they meet specific
requirements.
5. Bankruptcy does not require giving up everything. Every state has
exemptions to protect various assets, including homes, cars less than
a particular value, qualified retirement plan savings, household
possessions, and clothing. As long as the bankrupt party continues to
make payments on their mortgage and car loan, they can keep their
house and car. They might even be able to keep any credit cards that
have zero balances when they file for bankruptcy. Filing for
bankruptcy can drastically alter the interest rate on those cards,
though.
6. Bankrupt people can still get credit. However, the interest rates
on credit cards will be very high. And, getting a mortgage or car
loan may be extremely difficult and only available at onerous interest
rates if it is available at all.
7. Spouses do not necessarily have to both file for bankruptcy. If
the debt is in the name of only one spouse, then only that individual
needs to file. However, if the debt is jointly held, then they should
both file to avoid creditors simply pursuing the nonfiling spouse.
8. Most people file for bankruptcy because of life experiences
largely beyond their control, such as illness resulting in high
medical bills, a divorce, or loss of a job.
9. Bankruptcy is the worst thing you can have on your credit report.
Unlike other negative items that drop-off after seven years,
bankruptcy can remain for up to 10 years.
10. It is very inadvisable to run up a lot of credit card debt right
before filing for bankruptcy to avoid paying for your purchases.
Bankruptcy judges do not look favorably upon such actions, which are
considered to be fraud.
Sources:
"12 Myths About Bankruptcy" by Bankrate.com, MSN Money (February 12,
2005) http://www.gindeslaw.com/12_Myths_About_Bankruptcy.htm
"Bracing for the bankruptcy bill" By Jeanne Sahadi, CNN/Money (April
13, 2005) http://money.cnn.com/2005/04/13/pf/bankruptcy_bill/
Sincerely,
Wonko |
