In the past, many individuals have been afraid to file for bankruptcy because of the stigma that follows it. In the recent years, the negative image has almost been completely removed. Nowadays there are large corporations filing bankruptcy daily and it's become more and more commonplace. Much of the negative stigma that followed bankruptcy was created by the creditors. They do whatever they can, including guilt and name-calling, to try and stop individuals from filing bankruptcy. Recently the banks were bailed out with billions of taxpayer dollars and people are having a tough time feeling sorry for the poor creditors that are not getting paid from debtors due to bankruptcy. Creditors fail to mention the billions of dollars in interest and late fees that they collect from their debtors every year. If they weren't making huge amounts of profit, they wouldn't be trying to push credit cards on everyone so easily. There are many myths out there that have been perpetrated by the creditors to scare people from filing bankruptcy.
One myth is, bankruptcy will ruin your credit forever. What creditors don't want debtors to know is that the debtor's credit score is based on debt ratio. If the debtor, prior to bankruptcy, has all their credit cards tapped out and no available credit, their debt ratio would be extremely high lowering their credit score. Also adding to that, not being able to pay the monthly bills will add numerous late pays to the report also further lowering the score. After a debtor files for bankruptcy all their unsecured debt will be wiped out. Being debt-free will help the debtor to quickly rebuild their credit score as long as they can keep any new debt in check.
Another fable is, when someone files bankruptcy, everyone will know, including their family, friends and even employer. 99.9% of the time the only way any of these people will find out is if you tell them. Although, a bankruptcy filing is a public record, not unless someone is specifically looking for it will they be able to find it. If a friend or family member is a creditor they will have to be listed on the bankruptcy petition and will be sent a notice by the court. If this is the case, it's best to be straightforward and work something out with this individual to keep the peace.
Another urban legend is, you have to have a large amount of debt to file for bankruptcy. There are no minimum amounts of debt required to file Chapter 7 bankruptcy. But that's where a consultation with a bankruptcy attorney can be invaluable. If a person has a low-wage and barely can make ends meet, $5000 of debt might as well be $1 million and filing bankruptcy might help this person. On the other hand, if a person makes a good living and is capable of paying the debt back it probably would not be advised.
Lastly, bankruptcy will ruin your non-bankruptcy filing spouse's credit. After the Equal Credit Opportunity act was passed married couples no longer had to have joint credit nor did they have to file a joint bankruptcy. Your bankruptcy will not appear on your spouse's separate debts. Your spouse will remain liable for any debts that are joint debts, but as long as payments continue to be made it will not affect the spouse's credit. Once again, this is a situation that varies from couple to couple and should be discussed with a bankruptcy attorney. If there is a lot of property that is intertwined a bankruptcy attorney will most likely advise to file a joint bankruptcy.
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