Some bankruptcy myths debunked

On Behalf of | May 12, 2022 | Bankruptcy

While bankruptcy in Austin, Texas helps consumers with debts there are still some negative myths surrounding the process. In most cases, these myths are based on some truths that are distorted with false ideas.

Consumers won’t be able to get credit again

Credit scores drop for several years depending on the type of bankruptcy, but it doesn’t mean forever. In fact, consumers may find themselves bombarded with credit card and loan offers soon after the discharge or when they file.

Some filers qualify for a subprime mortgage in three years and a secured card as soon as one month after discharge. Some lenders cater to bankruptcy filers, but these loans often come with higher interest rates and have waiting periods.

Bankruptcy discharges all debt

Chapter 7 bankruptcy discharges unsecured debts, or debts without collateral, such as medical bills and credit card debt. However, it doesn’t remove every unsecured debt, which includes current taxes, current utilities, domestic obligations, or debt from fraud.

Older tax debt could get discharged if there is no fraud or liens, but current tax debt is commonly not dischargeable. Student loans may get discharged if the filer can prove that paying them will cause hardship.

Consumers lose all assets

Chapter 7 requires consumers to sell non-exempt assets, such as second homes, valuable artwork or jewelry, valuable collections, and second vehicles. However, even then, they may be able to save some nonexempt assets with state or federal exemptions based on specific values.

In Chapter 13, the consumer pays debts back over three to five years, so they don’t lose assets. However, they must maintain bankruptcy payments and stay current on mortgages and vehicle payments to avoid losing them.

Knowing the facts helps clear up misgivings and negative biases toward bankruptcy. However, since it affects credit scores for several years, consumers should consider their options.