At McElroy & Associates, We Understand That Bad Things Can Happen To Good People

Get A Fresh Start Through Bankruptcy

  1. Home
  2.  » 
  3. Consumer bankruptcy
  4.  » Common bankruptcy myths debunked

Common bankruptcy myths debunked

On Behalf of | Dec 8, 2021 | Consumer bankruptcy |

Bankruptcy in Memphis is a legal process to remove certain unsecured debts, such as credit cards and medical bills. However, it gets a bad reputation from the many myths that still exist.

Myth: Consumers lose everything

Many consumers file Chapter 7 bankruptcy, which requires the selling of the nonexempt property to pay creditors. Nonexempt property means things the court classifies as nonessential, such as watercraft, second houses, jewelry, and luxury vehicles.

A filer’s primary home and vehicle are commonly exempt from consumer bankruptcy, and exemptions may save nonexempt property. Chapter 13, a repayment plan, doesn’t require the filer to sell any property as long as they maintain payments.

Myth: It is impossible to get credit after bankruptcy

Chapter 7 bankruptcy stays on a credit report for seven years, and Chapter 13 remains for 10 years. However, statistics show that the credit scores of consumers who filed in 2010 jumped from 538 to the low in the 600s.

While lenders look more favorably upon Chapter 13 filers, Chapter 7 filers still have a few options to get credit. Regardless of bankruptcy type, they should be prepared for higher interest rates and wait two to three years to qualify for a prime mortgage.

Myth: Filers can’t erase student debt

The myth of not being able to wipe out student debt has been around a long time, but it isn’t true. The reason for the myth is that a filer must meet some stringent requirements for partial or full discharge.

The consumer must prove that paying the loan will create an undue hardship, causing them to fall below the poverty level. In Chapter 13, the debt is worked into the payment plan, but the filer must have enough disposable income to qualify.

Sometimes, bankruptcy is the only way out of debt, and it doesn’t mean a personal failure. Given the impact on credit scores, consumers should weigh all options before choosing bankruptcy.