The term ‘Bankruptcy’ on its own is associated with a certain social stigma that tends to scare you off and restrain you in opting for a filing. There are a lot of myths that surround the idea of bankruptcy, and most people think that they cause more harm than benefit. If you too are one of those people who think that filing for bankruptcy means you are labeling yourself as financially broke in the eyes of lenders for years to come, it is time to change the perspective!
Filing for bankruptcy can in fact be beneficial for a large percentage of homeowners, provided they get their facts right, stay completely honest throughout the procedure and opt for a consultation with an experienced and competent law attorney. Following are some popular misconceptions related to bankruptcy that you should know before making the final decision:
1.A Debtor has to be Broke to File for Bankruptcy
Contrary to common belief, this is not the case. The one and only requirement to file for bankruptcy is being unable to make payments for your debt. You always have exemptions on your account, that consist of property and possessions that do not have to be liquefied in order to make up for the defaulting. Also, in order to file for bankruptcy, you must have certain non-exempt or unsecured debts on your account that you can let go in order to compensate for the missed payments and building debt.
2. Your Credit Score will be Dented Forever
The thing to understand here is that your credit score does not only depend upon your any foreclosure or bankruptcy on your account, but it is largely reflected by your previous payment history and any defaulting as well.
Therefore, if you have reached a point where bankruptcy seems inevitable, it is clear that your credit score is already weak in the first place. However, there are certain ways to improve your credit the future, and though bankruptcy may cause a sudden downhill, you can always bounce back from the loss and build a better score in the future.
3.You will have to Sell off Everything You Own to Clear Your Financial Status
Again, a common myth. The image in most people’s minds is that being bankrupt means you have to let go of all your financial resources in order to pay off your loans completely to the lender. However, this is not true. Most of the items that are essential for survival like food, clothing, transportation and your house are exempted from the liquidation, and you only have to rely upon your unsecured assets to pay off the debt in due course.
4. Your Employer will know and you will lose Your Job
Certainly not! Your employer does not have to know if you are filing for bankruptcy. It’s a completely personal matter related to you, your lender and your attorney. And no employer has the right to barricade of your job just because you have been facing financial problems that led to bankruptcy. As long as you are performing well up to the par at work, you are doing great!
5. You won’t be Able to Buy a House Again in the Future
That is definitely not true! Though a bankruptcy filing can affect your credit score and may single you out as being a risky candidate, a good down-payment and security on the account can definitely make you eligible for another mortgage. You may however be entitled to a higher mortgage rate, but the possibility of buying a house again cannot be ruled out be completely! However, it is a good idea to wait for a certain amount of time to stabilize your finances and opt for another mortgage when you are completely ready to do so.