There are many myths surrounding bankruptcy, and we’re here to debunk them for your. Below are 5 common myths surrounding bankruptcy and the truth behind them.
Myth #1: All debts are wiped clean after bankruptcy.
False
Bankruptcy does give a clean slate, but unfortunately, not all debts can be forgiven. These debts are known as “nondischargeable debts.” Common debts that are unforgivable include child support, student loans, debts incurred due to injury caused by driving while intoxicated, taxes, etc. To learn more, check out this blog post from earlier this month.
Myth #2: Those who file for bankruptcy are irresponsible.
Mostly false
While some people who file for bankruptcy are irresponsible, others have just fallen on hard times. Most of the time people have had one of the three things happen to them: job loss, divorce, or extreme medical bills. Bankruptcy is not something to be ashamed of. It is a clean slate so that you can try again.
Myth #3: Bankruptcy is private
False
Unfortunately, many people will know about your bankruptcy filing, as it is public record. Luckily, only people with a PACER (Public Access to Court Electronic Records) account can access these documents, and it costs $0.80 per page in order to view these records so not many go to the trouble. It is important to note that anyone can register for a PACER account, but normally only attorneys, trustees, government agencies, and the media do.
Myth #4: Right before filing for bankruptcy, you should spend as much as you can.
False
Unfortunately, courts have ruled that such reckless abandon is considered fraud, and these debts (including credit card debt) will not be discharged in a bankruptcy hearing. In short, you won’t get away with it, and you will be responsible to pay for these debts even after your bankruptcy.
Myth #5: Bankruptcy will ruin your credit.
Only temporarily
Bankruptcy temporarily stains your credit, but pretty soon you will start to rebuild your credit, especially if you are wise. Credit card offers will start to come in the mail within a few months.
If you would like to quickly rebuild your credit, open a secured credit card and make regular payments. After about a year, you should be able to get a normal card again. Just make sure that you continue to make on-time payments, or your credit score again will drop. Within two years, your score will return to 725-750 if you pay your bills on time. Bankruptcy will stay on your credit report for 10 years after filing.