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For many adults, there is only one word that strikes more fear in their hearts than an IRS audit or their teenager's first date: bankruptcy. If you're drowning in debt and there's no end in sight, you might assume that bankruptcy will ruin your chances of ever owning a home, buying a car or even securing a credit card. However, before you believe everything you're told by your well-meaning friends and coworkers, learn about a few of the most common bankruptcy myths:
Bankruptcy Will Ruin My Credit and Reputation
Aside from the constant stress and the string of never-ending phone calls from collection agencies, the most damaging effect of debt is to your credit score. Your score is low enough, and you're sure that filing for bankruptcy will ruin your future chances of ever purchasing a home or leasing your dream car.
In addition, because filing for bankruptcy requires hiring a lawyer and standing before a judge, your name will be prominently displayed in the local newspaper for all your friends, neighbors and coworkers to read.
However, before you assume that filing for bankruptcy will destroy your credit and reputation, it's time to learn the truth: bankruptcy can give you the fresh start you need to begin rebuilding your credit. In addition, it won't take the seven to 10 years your friends insist it will, either. As long as you still keep paying your bills on time, your credit will slowly but surely begin to improve.
When it comes to the fear of a sullied reputation, Bankrate recommends not letting this minor dilemma keep you from filing for bankruptcy. If you live in a smaller town, it's possible your name will be in the paper. However, chances are there are so many people in your community filing for bankruptcy that the paper won't have the space to print them all, including yours.
The New Bankruptcy Laws Make It Impossible To File
Once you uttered the word "bankruptcy," did at least one of your friends and family members tell you "good luck" and promptly began talking about the 2005 law changes? Your well-meaning loved ones were referring to The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Basically, this act was passed to prevent "dishonest" debtors who abused the more lenient bankruptcy laws that were once in effect. For example, it wasn't uncommon prior to 2005 for college graduates to file for bankruptcy, which allowed them a few extra years to save cash and establish their career before paying back college loans.
Once the 2005 act was passed, it became impossible for people to discharge their college loan debt, and unless you're trying to trick the government out of paying back your loans, there's still a good chance you'll qualify for bankruptcy. In addition to striking fear into the hearts of many cash-strapped Americans, these new laws made it even more confusing to understand even the basics of this process. If you're not a legal scholar, don't hesitate to contact an attorney to help determine if you're eligible and how to get started.
The Harassment Will Continue After Bankruptcy
If you've ever been late on your cellphone bill or mortgage, you know how stressful it can be to get back on track while trying to appease those debt collectors who seem to call at the most inconvenient times. You want the phone calls and threatening letters to stop, but why file for bankruptcy if the harassment will still continue, right?
Once you file for bankruptcy, if any debt collectors contact you by email, phone or letter, you can politely remind them of Section 362 in the bankruptcy code. Basically, this section makes it illegal for creditors to ask for a single dime. If the calls continue after filing for bankruptcy, your creditors can face several severe punishments, including hefty fines!
The prospect of filing for bankruptcy is scary, and for a small minority, this isn't always the correct decision. This is why it's imperative to contact an attorney before attempting to take on this complicated task. Even if you decide bankruptcy isn't the right choice, an attorney can offer you additional options to help you get your finances back on track.
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18 September 2014