Bankruptcy is often misunderstood by debtors

The new bankruptcy law has a lot of people thinking about personal bankruptcy, or court-ordered debt relief for the first time. Many people don't know much about debt relief law, so we will look into a few misunderstood things about the bankruptcy process. Banking professionals doubt that the Federal debt relief law will help consumers; so far it looks like a much better law for the creditors than for the debtors.

Continued below

Here are a couple of of the myths and misconceptions regarding personal bankruptcy.

Can the courts eradicate all personal debts?
 
No. Certain types of bills are exempt from being forgiven. You have to continue to pay child support, student loans or federal, state and local taxes. Student loans may not be erased; they have to be repaid. On the other hand, the rates of interest for student loans are low, so the burden is significantly less than for other kinds of debt.
 

Can those who file be fired for court-ordered debt relief?

No, you cannot be terminated for filing for bankruptcy; that is against the law. Pre-employment credit checking is wonderful reason for working to put off filing for bankruptcy in the first place. The law does allow corporations to conduct credit reviews on would-be hires, and having a bankruptcy filing on your credit record does not do you any favors when it comes to obtaining employment. If you are not employed, you can not pay off your debts. Those who rent may not understand that a lot of landlords conduct credit screening on prospective tenants. If you are considered to be a risk for paying your rent, you may be unable to secure a place to reside or work.

Can you apply for bankruptcy as regularly as you want?

Debt relief filings are limited and do have long term consequences. A debt relief filing will remain on your credit report for a decade. There is a price to be paid for filing for personal bankruptcy, and people with financial difficulties should not take a debt relief filing lightly. Filing for bankruptcy may make it harder to acquire significant credit, such as for a car loan or a mortgage. Debt relief law allows you to file for debt relief for Chapter 7 bankruptcy, which wipes out most personal financial obligations, just once every 6 years.

Is it possible to keep your residence, boat, recreational vehicle or car or truck if you file for debt relief?

Boats, cars and recreational vehicles are not excepted and must be sold to pay off your debts. Some states, such as Florida, have generous home exceptions, provided that you have lived in the house for at least 40 months.