Bankruptcy is an area of the law that is fraught with myths and misconceptions. Often people know very little about the true nature of bankruptcy and how it will affect them. It is important to understand that bankruptcy is not something to be feared. Rather, it is a tool that can be used in the appropriate circumstances to eliminate or reduce your debts and give you a fresh opportunity to rebuild your finances.
In that spirit, we’ve put together this list of 5 things that most people don’t – but should – know about bankruptcy:
1. Most people are able to keep most, if not all, of their assets: None of your property will be taken in a Chapter 13 bankruptcy because you will be repaying a portion of your debts over a set time period. In Chapter 7 bankruptcy, you are allowed to keep some of your property under what is known as “exemptions.” In Texas, you can choose between the federal exemptions statutes or the Texas state statutes. Large assets, such as the equity in your home and vehicle, are protected, and many smaller assets, such as your clothing and household furniture, are exempt up to a certain amount.
2. You may be able to stop foreclosure and keep your home: As mentioned above, a generous amount of equity in your home is exempt under Chapter 7 bankruptcy. If you are behind on your payments, a Chapter 13 bankruptcy gives you the opportunity to catch up on your missed payments through a court-approved payment plan and has the effect of stopping any foreclosure sales dates.
3. You can often rebuild your credit after only a few years: While it’s true that a Chapter 7 bankruptcy stays on your credit report for 10 years and a Chapter 13 bankruptcy stays on your credit report for 13 years, the actual effect that bankruptcy has on your credit is often much less severe. Because bankruptcy wipes out your current debts, your cash is now freed up to pay your bills on time and improve your overall crediting rating. It is also possible get credit cards, albeit at higher interest rates, after you have filed for bankruptcy. If you use your new credit wisely, you can improve your score in much less time than you probably think.
4. Most people will never know that you filed for bankruptcy: Bankruptcy filings are public record, but in reality, very few people will ever find out that you filed for bankruptcy unless you choose to tell them. The only people who will receive notification are those who are directly involved in your bankruptcy in some way, such as your creditors. Even if your employer does find out that you’ve filed for bankruptcy, it is legal for them to fire you because of it.
5. The cost of hiring a bankruptcy lawyer is far less than the cost of making a mistake in filing for bankruptcy: Filing for bankruptcy requires you to comply with both Texas state and federal laws. It also involves a large amount of paperwork and court filings. If you make a mistake in your bankruptcy filing, your case can be dismissed. Also, by hiring an attorney you can maximize your exemptions, ensuring that you keep as many of your assets as possible. There is a limit on how often you can file for bankruptcy, so it is critical that you seek the advice of an experienced attorney to be sure it is done correctly.