November 21, 2017

Bankruptcy Myths Debunked: Part 1

There are many myths about bankruptcy floating around.  Some are based on a kernel of truth, while others are flat-out incorrect.  I will dedicate several posts to debunking some of the most common misconceptions and myths about bankruptcy.

MYTH 1:  The “Medical Bankruptcy”:  There is no specific bankruptcy for medical debt per se. Medical debt is general unsecured debt similar to credit card debt. This debt is eliminated through bankruptcy.  Now, one of the main reasons some people file for bankruptcy relief is medical debt.  Some studies have found that medical debt is the biggest reason for filing bankruptcy, but there is no special bankruptcy carved out specifically for medical bills.

MYTH 2:  Medical Bills Are Not Covered By Bankruptcy:  This myth is basically the opposite of Myth #1.  Medical bills are covered by bankruptcy, and by some accounts, medical bills form the basis of most bankruptcy filings.  This myth is a persistent myth, but it is completely untrue.  A variation of this myth is that credit card debt or even pay-day loans are not covered by bankruptcy, which is also false.  I have a sneaking suspicion that this type of myth may be spread by certain debt collectors trying to collect on medical debt or other types of debts.

MYTH 3:YouWill Never Get Credit Again:  This is completely untrue.  Filing bankruptcy, in some ways, may improve your credit-worthiness.  For example, after filing for bankruptcy your debt-to-income ratio dramatically improves.  In fact, credit card companies and car lenders will mine the bankruptcy database, and a few days after a consumer files bankruptcy he or she will receive a deluge of applications for credit cards and car loans (which probably is a good idea to avoid due to some of the high interest rates).  As I have discussed in prior posts, a consumer who files bankruptcy may be eligible for an FHA Mortgage Loan two years from filing, and in some circumstances, only one year from filing.  Now, bankruptcy will be reported on your credit report for up to 10 years, but a consumer’s access to credit is fairly immediate after he or she files for bankruptcy.

MYTH 4:  Everyone Will Find Out That I Filed For Bankruptcy:  This is also false. If you file bankruptcy, the people who will know you filed will be your attorney, the court, any co-debtors (co-signors on loans), any claimants of child/spousal support, and any one you choose to tell. Who files bankruptcy is public information, but only a very small group of people know how to access this information.  Your name will not be printed in the newspaper.  In fact, you probably know several people who have filed for bankruptcy, yet you may be unaware that they filed for bankruptcy.

MYTH 5: There Is A Minimum Amount Of Debt Required To File Bankruptcy:  This is false.  There is no minimum amount of debt a consumer must have to file for bankruptcy relief.  If you cannot pay your current debt with you current income, then bankruptcy may be a very good option to consider, despite your debt-load.

This wraps up Part 1 of “Bankruptcy Myths Debunked.”  If you would like to learn more about bankruptcy and how bankruptcy may improve your financial situation, please call today to schedule your free in-office bankruptcy consultation in Eugene.

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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