Myth 1

Bankruptcy ruins your credit for up to 10 years. (Totally False)

The truth is that many of my clients get good credit, car loans and home loans within two years of filing bankruptcy. They usually get new credit cards within months of filing bankruptcy.  

"Ten years” is the maximum amount of time a bankruptcy can be listed on your credit report.  Being “listed” does not mean that it destroys your credit. Many people with “bankruptcy” on their credit are able to get very high credit scores and get good rates on loans quite soon after bankruptcy.

The “7 year” number people often hear is how long you have to wait to file bankruptcy again.  That number is not even valid any more. In 2005, The Bush administration deviated from the long-standing “7 year” waiting period and changed it to 8 years. It is interesting to note that the ‘7 year’ period was based on the biblical teaching that debts should be forgiven every 7 years.  I find it ironic that a supposedly “religious” president felt the guidelines preferred by the credit-card companies were more important than guidelines in the bible.

Myth 2

Bankruptcy will hurt my ability to get a job.  (Almost certainly false for you)

The truth is that in almost every circumstance it is against the law to discriminate against someone because he or she filed bankruptcy.

An employer CAN discriminate against you for having bad credit. This is the irony.

Bankruptcy often HELPS your credit because you go from having a terrible debt to income ratio (i.e. you owe a lot relative to what you earn) to having a great debt to income ratio (because you have no more debt).  Many of my clients are sent to me by their own employers because they can't get a promotion until they get rid of their debt. Contrary to the myth, bankruptcy is considered an act of responsibility, dealing with a problem, by the most educated people in the business world.

Myth 3

Bankruptcy will hurt your ability to buy a house. (This is just false, and silly).

This is very similar to myth 1, but I want to give it special attention because it is such a concern for many of my clients.  Of course, if you have great credit and you can pay all your bills, bankruptcy will hurt your credit.  Such a person would never file bankruptcy. However, if you need bankruptcy, you probably already have bad credit. Bad Credit is what prevents you from getting a loan to buy a house. 

The important question is, “what will get you good credit faster, bankruptcy or not-filing bankruptcy?”  Let's imagine that you have $20,000 of credit card debt. If you file bankruptcy that debt is going to be totally wiped out (discharged). That means, you will immediately have ZERO debt and an income. This will help your credit a lot.  Also, if your income takes a turn for the better you will be able to save for a down-payment rather then giving all your money to the credit card companies.  Bankruptcy helps thousands of people to buy a home every year.  

Myth 4

I will lose my house and car if I file bankruptcy.  (This is false for most people)

The answer depends on many factors including the value of your property,  who owns the property, and the location of you and the property.  There is no general rule that applies to every case. To be sure, you need to consult an attorney about the specifics of your situation. Many of my clients think that they will lose their property when they come into my office, and I usually find legal ways of keeping it safe.