Common Misconceptions about Bankruptcy | Tacoma Bankruptcy Attorney
When it comes time to file Chapter 7, Chapter 13, or Chapter 11 bankruptcy in Washington, many people have misconceptions about what will and won’t happen. For starters, bankruptcy is nothing to be ashamed of. One of the biggest misconceptions is that “only financially irresponsible people file for bankruptcy.” We assure you, that just isn’t true.
The reality is that bankruptcy can happen for a wide variety of reasons. Loss of a job, unforeseen medical expenses or other sudden life events (e.g. divorce or death of a spouse) can throw your financial life into disarray. In fact, medical bankruptcies are the leading cause of bankruptcies in the United States—affecting roughly 2 million people each year.
Bankruptcy is a legal and statutory right afforded to you under the United States Constitution. Art. I, Sec. 8. Congress created it as a last resort option for people who have massive debts and no way to repay them. It also serves as a mechanism to help you financially get back on your feet again. Here are a few common myths about bankruptcy that you should be aware of:
Myth #1: All Your Assets Will Be Seized
When you file for bankruptcy in Washington, it doesn’t mean that you will lose everything you own. The law affords you “exemptions” which legally protect a portion of an asset. This is most often the case when filing for Chapter 7.
When filing for Chapter 13, you set up a three to five-year repayment plan (based on your income) to repay your creditors. Your debts are reorganized, consolidated and a Chapter 13 trustee pays your creditors (after you pay the trustee). If you file for Chapter 13, your assets will not be liquidated.
Myth #2: Kiss Your Credit Score Goodbye
While it is true that a bankruptcy will reside on your credit report for ten years, this doesn’t mean that your credit will be completely destroyed for the same period of time. Many people start seeing increases in their credit score within 2-3 years after filing. There are things you can do to help increase your credit score, such as applying for a secured credit card or getting a co-signer for a loan.
Myth #3: All Debts Are Discharged
Many people are under the impression that Chapter 7 will remove all of their debts. This is not the case, as there are several exceptions, including student loans, tax debts, child support, some driving tickets, and criminal restitution cannot be discharged most of the time. In special cases, you might be able to find some tax relief. However, you will need to speak with a bankruptcy attorney to see if your situation qualifies you for their discharge.
Myth #4: You Can’t Get a Home Loan After You File
Another common misconception is that you will be unable to get a loan to buy a home. Most people will be able to get a home loan as soon as two years after they file for bankruptcy. In fact, many people find multiple credit offers in the mail soon after filing.
Creditors know that bankruptcy can only be filed every eight years and they offer credit to those looking to rebuild their credit score. Be wary of any credit offers with astronomical interest rates, as they can easily get you back into a cycle of debt.
Myth #5: Filling for Washington Bankruptcy is for Everyone
There are certain rules and conditions that must be met in order for you to file for bankruptcy. If you file for Chapter 7, you will be required to pass a means test. If you file for Chapter 13, you must have enough disposable income in order to qualify (and begin to make payments to your creditors). There are alternatives to bankruptcy that an experienced and trusted bankruptcy attorney can advise you on.
Dedicated Bankruptcy Attorney in Tacoma, Washington
When it comes to bankruptcy, there’s a lot of misconceptions floating around there. If you’re considering filing for Chapter 7, Chapter 13, or Chapter 11, you need a trusted attorney to give you all the facts and advise you through the complicated process. At the Law Offices of David Smith, we have helped countless people successfully file for Washington bankruptcy over the years. Give us a call at (253) 272-4777 or contact us to schedule an free appointment to speak with David regarding your financial situation and the best way to proceed.