Recent Posts


Myths to ignore about bankruptcy

Facts And Myths About Chapter 7 And Chapter 13 Bankruptcy

In today’s information age, there is no shortage of myths about your rights and obligations in a bankruptcy filing. Here are some of the facts:

  • A bankruptcy filing will stop creditor harassment – When you file a Chapter 7 or Chapter 13 petition, an automatic stay goes into effect immediately, prohibiting your creditors from calling, writing or taking legal action (outside of the bankruptcy proceeding) to collect a debt.
  • Some debts can be permanently discharged in bankruptcy – In a Chapter 7 proceeding, you can generally rid yourself of certain unsecured debts permanently, with some exceptions such as certain tax obligations, child support payments and student loans.
  • You may keep some of your property in a Chapter 7 proceeding – Each state has different rules, but you can generally keep up to a certain value in homes, cars and personal property.
  • A bankruptcy proceeding can suspend foreclosure or garnishment proceedings – Though you cannot extinguish the debt on secured property and keep the property, the automatic stay applies to all creditors.

Now, we will address some of the myths of bankruptcy:

  • Your credit will not be ruined forever – While bankruptcy will have a short-term impact on your credit, potential lenders are more interested in what you do after you file for bankruptcy. If you keep your financial record clean, you can find yourself eligible for credit cards, auto loans and even mortgages within a couple years.
  • You cannot be fired from your job for filing for bankruptcy protection – Federal law prohibits this.

Michigan residents and others who file for bankruptcy may see their credit score drop by as many as 200 points. However, a lack of negative information on a credit report prior to the bankruptcy has little impact on how much damage it will do to a specific individual. Typically, the fact that a person has filed and how long ago it occurred play the biggest roles in impacting a person’s credit.

It is important to know that only a Chapter 7 bankruptcy stays on a credit report for 10 years. All other information falls off after seven years, and this includes the fact that a person filed for Chapter 13 bankruptcy. However, the impact of a bankruptcy tends to be less significant as time passes, and credit scores may improve significantly within four or five years. Individuals can obtain new credit to help repair their credit immediately after a bankruptcy case is over.

This can be done by applying for a secured credit card or a credit builder loan. A person may also benefit from a lower debt-to-income ratio after debts have been discharged. However, individuals should know that not all debts can be erased in bankruptcy. Federal student loans are a common example of a debt that generally doesn’t go away in either Chapter 7 or 13 proceedings.

People who are struggling with credit card debt, medical debt or any other debts may be able to find relief through bankruptcy. Whether an individual chooses to file for Chapter 7 or Chapter 13 bankruptcy, it may be possible to have unsecured debts discharged and secured debts reorganized. It may also be possible to put an end to creditor contact as well as postpone a foreclosure or repossession. That might provide enough leverage to renegotiate loan terms with a lender.