Bankruptcy Questions And Answers

Bankruptcy law is quite complex, and most consumers do not have a very good grasp of the intricacies of it. Because of this, many misconceptions about the process have developed. If you are considering filing for bankruptcy, make sure you do not fall prey to one of these misconceptions.

The first misconception is that you have to be completely out of money to file for bankruptcy. Of course, many who do are broke, but this is not a requirement. The only requirement is that you are a debtor who cannot pay your bills when they are due. Bankruptcy law exempts some of your property from being accessible by your creditors, so you can have some money or equity and still file for bankruptcy.

Another misconception is that bankruptcy does nothing with tax debts. While most taxes still must be paid, some can be discharged under bankruptcy. Be sure to discuss your tax debts with your attorney.

Some mistakenly assume that filing for bankruptcy means they will lose their home. While this is possible, many states allow homeowners to keep their homes under certain exemptions. For instance, in the state of New York, homeowners can keep the first $10,000 of their home's equity. If the individual has more than $10,000 in equity, the property would have to be sold, but if the equity is less than $10,000, it cannot be touched. Many homeowners do lose their homes in the bankruptcy process, but it is not a guarantee.

It is also wrong to assume that bankruptcy will destroy your credit rating forever. Yes, bankruptcy has a huge impact on your credit rating, and one that will stay with you for many years, but it does eventually fall off. If filing for bankruptcy gives you the freedom in your budget to start making better payments on your existing bills, you may be able to improve your credit quickly, in spite of the bankruptcy being on there. If you can establish a good repayment history on your existing bills after filing for bankruptcy, you could end up in a better financial situation in just a few years. Since you cannot pay your bills as it is, your credit is probably already pretty low.

Remember, bankruptcy is not ideal, but for many debtors it is the best option. It gives them the ability to get a handle on their debts in what otherwise is an impossible situation. If there are alternatives, pursue them, but if you are at the end of your financial rope, do not be afraid to file for bankruptcy.