Personal bankruptcy isn’t complicated, but misunderstandings persist

The new Bankruptcy Abuse and Consumer Protection Act has many consumers with problem debt confused about how the new law may affect them personally. The law was intended to make it more difficult for the casual debtor to file for debt relief, but was supposed to still be able to help those who really need it. It remains to be seen if that’s the case; so far it looks like a much better law for the creditors than the debtors. Still, there’s a lot of confusion out there as people ponder the new law. We’ll look at a few of the myths and misconceptions regarding personal bankruptcy.

Can you file for bankruptcy as often as you like?

No. You may only file for Chapter 7 bankruptcy, which relieves all personal debts, once every six years. Any such filing will remain on your credit report for a decade. This may make it harder to obtain substantial credit, such as for an auto loan or a mortgage. Because of this, such a filing should not be taken lightly. There is a price to be paid for filing for debt relief.

Can you lose your job for filing for bankruptcy?

No, that is against the law. On the other hand, many companies routinely run credit checks on potential hires, and having a bankruptcy filing on your credit report does not do you any favors when it comes to obtaining employment. That’s another good reason for trying to avoid filing in the first place. If you don’t have a job, you can’t pay your debts. Worse, many landlords also run credit checks. If you are perceived to be a risk for paying your rent, you may find yourself unable to secure a place to live.

Filing gives you a chance for a “fresh start.” Correct?

Yes and no. True, most debts are wiped away. On the other hand, those debts are recorded on your credit report and the damage to your credit score will remain for up to ten years. That, as we mentioned above, can seriously jeopardize your ability to borrow money for a car or a home.

Can you keep your house, boat, recreational vehicle or car if you file?

Probably not. Some states, such as Texas and Florida, have generous household exemptions, provided that you have lived in the house for at least 40 months. Boats, cars and recreational vehicles are not exempt and will have to be sold to pay your debts.

Can the courts liquidate all personal debts?
 

No. Some types of debt are exempt from relief. You must continue to pay child support, student loans or federal, state and local taxes. Student loans are forever. On the other hand, the rates are low, so the burden is significantly less than for other types of debt.

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