Mar 14 2011
Top 5 bankruptcy myths debunked
I was on a well respected credit website today reading their recent blog and I was blown away by the misinformation they were giving about the pros and cons of filing bankruptcy. Having gone through a bankruptcy personally and having counseled hundreds of clients who have filed a bankruptcy, I can tell you that bankruptcy is not the kiss of death for your credit. While I am not an advocate of people running out and filing bankruptcy without careful consideration, I am advocate for truth.
I often wonder when I see an anti-bankruptcy campaign whose interest is really being considered. Credit card companies will do all they can to have you believe bankruptcy is a horrible thing and you are a horrible person for filing. Consumer credit reporting agencies TransUnion, Equifax, Experian (The Big Three) would have you believe the same.
Why? Obviously the credit card companies want to you pay up, not only what you owe but all of the extras they tack on. I’ve seen a $300 credit card become an over $1000 collection. So why do The Big Three want to avoid bankruptcy? Because they make money every time your account gets sold to another collection agency. And, the worse your credit score the more money they make.
Ok, I know what you are thinking… Victoria, people should take responsibility and pay what they owe. I could not agree with you more. But, what do you tell the family who never missed a payment until the major wage earner was stricken with cancer and the insurance company stopped paying? The number one cause of bankruptcy is…You guessed it – medical bills. And, yes doctors deserved to be paid. The problem is that often doctors will not set up payment arrangements. So good people end up filing bankruptcy.
Now to debunk bankruptcy myths:
Myth 1: A bankruptcy will affect your credit score for 10 years.
Truth: While bankruptcy may stay on your credit report for 10 years (chapter 7 only), your credit score will not be affected for the entire 10 years. With proper reestablishment of credit your score will begin to recover quickly.
Myth 2: Filing a bankruptcy will lower your score to the 500′s.
Truth: If you are not paying your credit cards and have maxed them out. Your credit score is more than likely already in the 500′s.
Myth 3: Accounts included in a bankruptcy will remain on your credit report for 7 years.
Truth: Seven years is a MAXIMUM not a MINIMUM amount of time an account included in bankruptcy may remain on a credit report.
Myth 4: You will not be able to get a good mortgage rate for 5 years after bankruptcy.
Truth: Many consumers can qualify for an FHA (federally backed mortgage) 2 years after bankruptcy with very attractive rates. Three years if a home was involved in the bankruptcy.
Myth 5: Employment and insurance can be severely affected after a bankruptcy.
Truth: The impact on insurance is typically much less than the interest, fees, and late charges charged by credit card companies. And, under United States Bankruptcy Code an employer can not discriminate against you for filing bankruptcy. However, they can and most likely will for judgments, late pays, and multiple collections.
As I said before, I am not an advocate of people running out filing bankruptcy. If you are contemplating filing bankruptcy, make sure you weigh all of your options.
I have spent almost two decades empowering my clients financially through credit education. If you have filed bankruptcy and need help re building your financial life, call me at 317-527-1440. I am here to help.
