Arizona Bankruptcy Myths: Do Not Let Assumptions Stop You From Learning About Your Options In Bankruptcy By Thomas Cesta â€“ Mesa Bankruptcy Attorney Bankruptcy sounds so much worse than it is. Consumers fear it, some to the point of financial ruin. Businesses on the other hand see it for what it really is a financial tool to get back on track. The following are 10 of the most common bankruptcy myths that I have heard from my clients.
Myth 1 I will lose everything if I file for bankruptcy. Fact: Every state has exemptions or uses the federal exemptions. These exemptions are fairly realistic and most of your stuff will be protected. In most cases you will be able to keep your car, your household goods, even most savings can be protected prior to filing. Anything that is not protected you probably already sold to make ends meet. And if you didnâ€™t sell it yet, you still can prior to filing for bankruptcy to use for fees, or to spend on something exempt. Your bankruptcy attorney can help you decide how to cover your assets. [Only an attorney can advise you on your exemptions. If you prepare your case on your own, or use a document preparer, you may lose more from missed exemptions, or by not properly protecting assets, than an attorney would have cost you. This is penny-wise, but pound-foolish, as they say.]
Myth 2 Bankruptcy will hurt my credit. Fact: Your credit is usually already bad because of late payments, high balances, charged-off accounts, collections accounts a foreclosure, or repossession, etc. However, the average consumer that files bankruptcy will see their postpetition credit score increase 100 or more points in one year or less after the bankruptcy discharge. And with good management, you could be back in the 700s in two years.
Myth 3 If I file for bankruptcy I will not be able to buy a home or car for 10 years. Fact: As long as your credit score is at least 620, you will qualify for an FHA loan 2 years after your discharge. And as far as the car, some lenders will even attempt to get you to buy a car while the bankruptcy is still pending, if it is a Chapter 7 bankruptcy. True, the loans at the outset will have a higher interest rate, but you can usually refinance these in about a year. Or, you can wait. In only about a year after the discharge you can get a loan with an interest rate at least comparable to what you would have gotten before filing, maybe better. [FHA has other limitations on loans that do not relate to the bankruptcy. This article does not purport to identify all of the FHA requirements.]
Myth 4 No one will give me a credit card again. Fact: Most bankruptcy petitioners get credit card offers within weeks of filing for bankruptcy protection. Think of it this way: when you get the discharge, you will not be able to file a Chapter 7 bankruptcy for 8 years, or Chapter 13 for 4 years. So if you default on the credit card, they can sue you and then garnish your wages, and probably get everything you owed them before you can file another bankruptcy. In short, you are a better risk than someone who has not filed. But because you want to build your credit, you are likely willing to accept a higher interest rate, and maybe annual fees. So the credit card company is happy to lend to you, and they are hoping you will pay late so that they can start charging you even more.
Myth 5 Only bad people do not pay their bills. Fact: Abraham Lincoln filed for bankruptcy. Google Famous People and Bankruptcy sometimes many good people have found themselves unable to repay a debt, often because of a change in finances, or because of something the bank did to make it more difficult. Some of your Heroes may well be on that list. Most people who apply for bankruptcy protection are simply drowning in debt. Most will never need to file bankruptcy again. For them, it is a choice between maximizing the banks bottom line, and providing for their family. Bankruptcy is the solution they need.
Myth 6 I caused the problem, not the bank. Fact: Most consumers blame themselves for having financial difficulty, and most feel that they owe the companies that took a chance on them and lent them money. However, credit card companies, banks and other financial institutions do not have your best interest at heart. They are in it for the money. Your difficulties maximize their profits. Most consumers do not have a degree in finance. The banks exploit this. Banking policies and procedures are set by people who do have graduate level degrees in finance in order to maximize profit. For example, due dates are seldom the same day each month, which makes it harder to schedule the payment and results in more frequent late payments, and late fees. It is not an even playing field. It is a bit like playing poker where you only see your cards, but the other player gets to see your cards and theirs.
Myth 7 Banks only lend to people who can easily afford to pay back the loan. Fact: Most of us believe that a company will not lend us money unless we can afford to repay it. The truth is, the more difficult it is for us to repay the loan, the more money the companies will make from lending to us. It actually makes perfect sense that banks make more money on people who have difficulty repaying the loan. When money is already tight you are more likely to make a late payment. When you are late, the bank charges late fees, and they raise the interest rate, often by double or triple, and they lower the credit limit and then charge over-the-limit fees. They justify this by saying you have proven to be a bad risk so decreased credit limit and the increased interest rate protects them. But in fact the increase in interest rate just makes the loan harder to repay, and makes the minimum payment higher. This means more late payments and more bank profits.
Myth 8 Bankruptcy is bad for the country. Fact: Bankruptcy and Consumer Debt are neither good nor bad. Consumers with debt make banks rich, but the consumers cannot afford to buy new clothes and other consumables. Consumers who get a bankruptcy discharge are often able to afford to spend money with local companies: and local companies need to sell product in order to continue to retain employees. These consumers can also better afford to send their kids to college, which means higher incomes for the kids, and more money to spend in the economy.
Myth 9 Bankruptcy will hurt the banks. Fact: Because most people struggle to pay their debts for 5 years or more before considering bankruptcy, most banks will have already recovered all of the principal owed, plus interest, before a bankruptcy is ever filed. The bank will make less profit from you, but the bank will also benefit from the tax write-off when you file.
Myth 10 Bankruptcy is immoral. Each consumer should seek their own guidance on this one. Letâ€™s face it, attorneys are not often thought of as a source for moral guidance. However, the bible and the Koran both instruct on debt forgiveness. Consult a bankruptcy lawyer in Mesa Arizona to find out if bankruptcy is right for you. Bankruptcy is an important decision, not to be taken lightly. However, many people have opinions about bankruptcy which are just not valid. Before you dismiss bankruptcy as a bad decision, you owe it to yourself to meet with a Mesa bankruptcy attorney to discuss the pros and cons of filing. You may find it to be the best decision you ever made.
Published By: The Law Offices of Fife & Cesta, PLC 1811 S. Alma School Rd, Ste 270 Mesa, AZ 85210 Office: (480) 850-6541 Email: firstname.lastname@example.org Re-Posted from: http://www.avvo.com/legal-guides/ugc/bankruptcy-myths-do-not-letassumptions-stop-you--from-learning-about-your-options-in-bankruptcy
Published on Jun 14, 2012
Bankruptcy sounds so much worse than it is. Consumers fear it, some to the point of financial ruin. Businesses on the other hand see it for...