Understanding fact and fiction regarding bankruptcy
Get the facts about what bankruptcy can and cannot do for you before deciding if it is the right option to help you.
Many residents in Nashville still find it hard to manage debt and pay bills in full or on time despite the improving economy. Because there are many misconceptions about consumer bankruptcy, some of these people may be hesitant to consider filing for bankruptcy. These myths can actually stand in the way of receiving important help. Taking the time to become educated about bankruptcy first before making a decision is the best option for debtors in Tennessee.
Following are four commonly held beliefs about different bankruptcy plans and their associated facts.
Myth #1-debtors cannot obtain mortgages after bankruptcies.
The New York Times tackles this issue directly by making it very clear that obtaining a new mortgage is very much within the grasp of a consumer after filing bankruptcy. In many cases, additional information may be requested such as details about the consumer’s situation that led to the bankruptcy filing. Offering details about how the current situation differs and is better than the pre-bankruptcy situation can also be helpful.
- Myth #2-chapter 7 bankruptcies always result in the loss of homes.
It is true that a Chapter 7 is known as the liquidation plan because assets can be sold in order to repay debt. However, that is not always what happens. Tennessee law allows for consumers to claim homestead exemptions in their residences ranging from $5,000.00 to $50,000.00, depending on the consumer’s marital status, age and whether there are minor children. If the non-exempt equity of the home is below the exemption threshold, it may be kept, assuming the mortgage is not in default with the lender. If the loan is in default or if this non-exempt equity, the property could still be retained in Chapter 13 bankruptcy.
- Myth #3-bankruptcy can clear every type of debt.
This might be something that people wish to be true but it is not. Child support, student loans, alimony and recent taxes are examples of some debts that cannot be discharged in a bankruptcy. Additionally, any debt incurred through criminal actions or fraud will remain non-dischargeable.
- Myth #4-discharged debts will be wiped from credit reports.
All debts, even those paid in full via a bankruptcy, will remain on credit reports. Once discharged or paid, the credit report will note that status but it will not erase the history altogether.
Before filing for bankruptcy, people should be aware of these and other pertinent details that may impact their decisions.
Consulting with a lawyer who has experience in bankruptcy law can be a great way to learn the truths about bankruptcy and determine if it is the best option for a specific situation.
Keywords: bankruptcy, myth, Chapter 7, Chapter 13