So you’ve made an appointment with a bankruptcy attorney. Things are getting out of hand with the bills, the calls, the stress — and you’re just ready for a break. And you’ve heard that bankruptcy might be a good solution . . . .bu-u-u-u-t . . .you’ve also heard some things that make you nervous. Well, sit tight. A lot of what you may have heard is either inaccurate or just plain wrong. Here are a few of the things I hear a lot from people considering bankruptcy but feeling, well, nervous about the whole process.
1. Bankruptcy will ruin my credit for 10 years.
No. No it won’t. The fact that you filed a bankruptcy will show up on your credit report for 10 years. That doesn’t mean that your credit is ruined for that amount of time. In fact, far from it. After the discharge order is entered, your creditors must accurately report the status of your accounts, and it should reflect that the account has a $0.00 balance and that it was discharged in bankruptcy. Something to remember, too, is that you will not be able to receive another discharge for 8 years after the filing of your recent one. So how does this all add up to not ruining your credit? To some extent, that depends on you. If you get a credit card or qualify for a car loan following your discharge and you demonstrate that you can pay on time and, in the case of a credit card, keep the balance low, you will see your credit score begin to move up. Another year or two of “good behavior” and you might even find yourself in better credit shape than you were before! So although there might be a bankruptcy in your past, it doesn’t have to cut you off from better credit in the near future! A bankruptcy attorney can explain in much greater detail what you can expect and help to guide you along the way.
2. They’re going to take all my stuff and sell it to pay creditors.
This is really a misconception. In a chapter 7 bankruptcy, if you DO have valuable assets, there is a possibility that you will have to turn some of those assets over to the bankruptcy trustee so that they can be converted to cash to pay creditors. Depending on the state in which you file, however, it is likely that you can keep all of your assets and not have to be concerned about losing anything. This is because the bankruptcy code permits you to keep things . . .household furnishings and goods, clothing, jewelry, a vehicle, tools and other items. You’re permitted have some equity in your house. The reason for this is that the law governing bankruptcy lets people exempt much of their personal property and their residence out of the bankruptcy estate. OK . . .great . . . what does THAT mean?
When a bankruptcy is filed, something called the “bankruptcy estate” comes into being. From that point forward (at least while the case is open) your stuff now belongs to the bankruptcy estate, and is under the control of the trustee appointed to administer the estate. BUT . . .here’s where the exemptions come into the picture . . .under the federal bankruptcy code and/or under state law, you are permitted to keep property . . .real estate, money, furniture, cars, etc . . .as long as the value of those things is not more than the law allows you to keep. And for this analysis, the value of your things is what they are worth right now, in their current condition. In other words, your stuff is valued at what someone else would be willing to give you for it on Craigslist or at a yard sale. In Pennsylvania we can choose to use either the Federal exemptions or the the state exemptions. In most cases, people are able to keep all of their stuff. But to get a full analysis of your particular situation, it is best to contact a bankruptcy attorney.
3. I was told I could keep 1 credit card out of the bankruptcy and use it to rebuild credit.
Aaaaaack!!!!! Oh dear oh dear oh dear no!! There is one short, blunt word for this . . .FRAUD!! Whew . . .I need to calm down here . . . OK. Here’s the thing: when you file a bankruptcy, you are required to provide the court with a list of all your assets (your house; your stuff); all your liabilities; a list of your income, and a list of your ordinary and necessary expenses. When you list your liabilities (debts), you must list every loan, every medical bill, every credit card or store credit card you have–even if it has a zero balance. Bankruptcy is about disclosure and transparency. You don’t play a shell game with the bankruptcy court. There will be opportunities to rebuild your credit after a bankruptcy. So list it all. And consult with a bankruptcy attorney to get the full picture of what you can and cannot do.