Financial secrets: Demystifying bankruptcy myths | Newsolio

Filing for bankruptcy is a major financial decision with long-term effects, but the reality isn?t as frightening as the mythology. Read on to demystify the confusion surrounding bankruptcy.

Financial secrets: Demystifying bankruptcy myths

For many of us, declaring bankruptcy as a means of protection from creditors seems like a drastic option. Once we?ve hired an attorney, declared our intentions to all of our creditors and filed the legal paperwork, the fear is we will never, ever recover from this experience. The short-term protection from creditors will mean long-term damage to our credit and the inability to ever finance an important purchase such as a new car or home. Bankruptcy was something we were taught to fear as young adults- a coward?s way out of paying his or her bills.

But with thousands of new bankruptcy cases filed every year, some of the stigma has been removed. We now understand that even the most careful financial planner can find himself without enough income to cover his outgoing expenses. When one debt goes into collection proceedings, it can start a chain reaction which can only be halted through legal protection. Bankruptcy does not have to be seen as the last desperate gasp of a failed personal financial plan, but as a legitimate way to restructure while still making some restitution to current creditors.

Here are some common bankruptcy myths, along with the realities:

1. ?I?ll owe an attorney thousands of dollars for something I could do myself.? Filing for bankruptcy involves quite a bit of intricate paperwork and some knowledge of the federal bankruptcy court system. Few non-professionals could properly file ALL the paperwork and know precisely what to tell a judge about their finances. Hiring a qualified attorney is probably in your best interest- many attorneys either specialize in bankruptcy cases or feature these services prominently. Their fees usually run in the hundreds of dollars, depending on how complicated your finances may be. This money is often collected as part of the final payment plan, not sought upfront by the attorney. Your initial consultation should be free as well.

2. ?My credit rating will be ruined forever if I file for personal bankruptcy.? Bankruptcy is not a minor financial matter, so there is bound to be some damage to your long-term credit history. You should anticipate this when you first file for protection. But a discharged bankruptcy does not mean an automatic end to good credit or the ability to finance major purchases in the future. For a set amount of years (usually 7 to 10), a bankruptcy filing will appear in your credit history. After that time has elapsed, you may be able to resuscitate your credit rating by making a few judicious purchases and repaying them promptly. Professional financial advisors can suggest any number of ways to restore at least enough credit to replace a car or finance an education. Declaring bankruptcy does not always add up to a lifetime of bad credit.

3. ?I?ll have to give up my home, my car and all of my assets.? Bankruptcy proceedings are a two-way street- creditors cannot escalate collection procedures and you must agree to pay some portion of your debt. You might have to liquidate some of your assets in order to satisfy your part of the deal, but the bankruptcy judge is not interested in cleaning you out entirely. You?ll be allowed to keep the majority of items essential for living. You won?t lose your only home or your primary vehicle under bankruptcy. No one is going to take the clothes off your back or the furniture out of your home. It?s much more likely that you?ll be asked to report the value of stocks, bonds, savings accounts and the like. Based on these figures, the judge may decide to order some liquidation or none at all. The idea that a bankruptcy judge will leave you with absolutely nothing is only a myth.

4. ?I?ll have to pay back EVERY creditor, even the ones I dispute.? This is precisely why you should never file for bankruptcy without a professional attorney. In theory, once bankruptcy is declared all of your current creditors can claim a portion of the proceeds. There is no distinction between a car loan you see as legitimate and a home repair bill you see as fraudulent. You?ll have to repay both debts under Chapter 13 restructuring. But during the initial court process, your attorney can file for a judgment against any creditor you feel is not entitled to repayment. You?ll have the opportunity to present your case just as you would in small claims court. The creditor may also respond with legal representation, or they may not even bother claiming the debt. If the creditor realizes the debt is not legitimate, it might be in their best interest not to challenge you in court. The bankruptcy judge can still find in their favor, but if they don?t show up for the proceedings, you will most likely prevail.

5. ?Bankruptcy carries a large social stigma and all my friends and colleagues will know.? Certain forms of bankruptcy have the appearance of being a ?easy way out?. Chapter 7 filings usually result in all debts being erased without repayment plans. The debtor must live without credit for a number of years, but they are essentially getting relief for what may seem like a lifetime of poor money management. Why should anyone continue to make minimal payments on credit cards and loans when all it would take is a few hours with an attorney? Unfortunately, this way of thinking may prevent a lot of people from seeking protection from creditors in a time of true financial crisis. Does declaring bankruptcy carry a social stigma? In many ways, yes it does but in other ways it?s no worse than losing everything to collectors and repo men. Taking steps to manage your debts before they overwhelm you is a responsible thing to do. Many of the same people who look down on bankruptcy filers have probably considered doing it themselves. In an economy driven by an unchecked credit card mentality, more and more people are finding it impossible to keep income running ahead of expenses. Some may find relief through credit counseling services, but finding a legitimate CCCS can be difficult. Chapter 13 bankruptcy allows a debtor to repay creditors without the fear of harassment. When in doubt, weigh that relief against the opinions of others who are not walking in your shoes right now.

Source: http://newsolio.com/financial-secrets-demystifying-bankruptcy-myths,1024

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