Bankruptcy Myths and Reality

June 28, 2012 (Press-News.org) Bankruptcy Myths and Reality

More than a million Americans file for bankruptcy each year, and as many as 1.25 million are expected to file this year, according to an article in U.S. News & World Report. However, the perceived stigma of bankruptcy keeps many consumers who could benefit from the process from actually pursuing bankruptcy as a debt-relief option. Unfortunately, this impression includes many mistaken ideas about who can file for bankruptcy, the reasons for filing and post-bankruptcy consequences.

Dispelling Common Bankruptcy Myths

Contrary to some beliefs, not everyone who files for bankruptcy is financially irresponsible with credit cards and loans. One of the main reasons why people file for Chapter 7 bankruptcy and Chapter 13 bankruptcy is medical costs, often resulting from unexpected serious health problems or a lack of health insurance. In the current economic climate, many people who were laid off, got divorced, experienced a significant health event or are struggling with overwhelming debt have used bankruptcy for a fresh start. With over five million long-term unemployed Americans, the risk of insolvency is higher than ever.

While providing a fresh start, bankruptcy does not clear away all debts, though. For example, most alimony and child support obligations, student loans and tax debt cannot be discharged. Further, the myth of last-minute spending sprees before filing is not grounded in fact. Courts often find fraud when individuals run up credit in anticipation of filing for bankruptcy. The applicable bankruptcy Chapters -- 7 or 13 for individuals -- also vary in what kinds of debt are subject to discharge.

Nor can individuals file for bankruptcy multiple times in a short period to avoid debts. Depending on the applicable bankruptcy chapter, individuals must wait from two to eight years before filing for bankruptcy again.

Obtaining Credit After Bankruptcy

Perhaps the biggest myth is that filing for bankruptcy means consumers won't have access to credit later. In fact, a well-conducted bankruptcy may keep credit scores high enough to qualify for some credit cards. After emerging from bankruptcy, consumers should make sure their credit report shows that debts were discharged. Some consumers may even qualify for home mortgages within a few years of bankruptcy.

The myths and unfair social stigma of bankruptcy should not keep people overwhelmed by debt from seeking relief. By consulting with an experienced bankruptcy attorney, people can learn how to lessen these burdens and obtain a fresh start.

Article provided by Law Office of Kevin J. Magorien
Visit us at http://www.kevinmagorien.com