Some common bankruptcy myths explained

Bankruptcy in Louisiana is a useful tool to remove some unsecured debts. Medical debt, divorce and unexpected expenses are the top reasons people file for bankruptcy. However, some myths still circulate make that may make consumers hesitate to file.

Consumers have to give up everything

While consumers may have to liquidate some property in Chapter 7 bankruptcy, it doesn’t mean they lose everything. The court only considers nonexempt property, such as second vehicles, watercraft, and valuable artwork.

Under Chapter 13, what the consumer owes gets worked into the repayment plan, which is at least the asset value. Sometimes, state or federal exemptions may help the consumer save a nonexempt asset up to a dollar amount.

It is impossible to get credit after bankruptcy

Bankruptcy may impact credit for up to ten years, but it is possible to qualify for credit soon after discharge. While consumers commonly get credit and loan offers after discharge, a lower credit score means higher interest rates.

There are mortgage companies that lend to consumers with a bankruptcy, but they often require a waiting period. To build credit, the consumer should continue to pay bills on time and apply for a secured credit card.

All debts get discharged

Bankruptcy only discharges certain unsecured debts, which include credit cards, past-due utilities, and medical debt. The Bankruptcy Code lists 19 unsecured debts that can not get discharged, such as:

  • Debts from malicious acts
  • Domestic obligations, such as child support
  • Payday loans within 70 days of filing
  • Debts from fraud or embezzlement
  • Certain tax debt

It is commonly believed student loans can not get discharged, but they may in certain circumstances. The filer must prove to the court paying the loan would cause them to live below a basic standard of living. Sometimes, state or federal income tax debt of more than seven years old may be eligible for discharge under certain conditions.

Bankruptcy is often the only solution to get rid of debt. However, consumers should get advice from a financial professional before filing.