Fear of filing bankruptcy keeps countless people mired in debt.
Are you one of them?
On Halloween, we indulge in mock horror and seek out the thrill that comes with a little fear.
When it comes to getting relief from bills you can’t pay in bankruptcy, the fear isn’t such fun. It stands in the way of a fresh financial start.
So, let’s look at the kind of fears that may be keeping you from solving your bill problem. You’ll find there is little, really, to be afraid of.
Fear #1: I’ll never get credit again
People in bankruptcy get credit. People just out of bankruptcy get credit.
Early on after bankruptcy, the credit terms aren’t as good as they will be a couple of years from your bankruptcy discharge. Within a couple of years, you’ll be a good prospect for credit.
Without bankruptcy, your current debt will drive up the price of any new credit you can get.
The bankruptcy hit to your credit is like a cut. The wound heals over time. Once healed, even the scar fades.
Fear #2: Bankruptcy will ruin my credit
With the debt you have now, do you really have “credit” ? Would any new lender seriously give you credit to get yourself deeper in debt?
Your credit record is a snapshot of your income and debts at any one time. As long as you owe money, that old debt is dragging down whatever “credit” you have.
After bankruptcy most, if not all, of that old debt is gone. A new lender doesn’t have to compete with the old lenders in your past life for payment. You’re a lot more attractive borrower if you have no other debts.
Fear #3: I’ll lose all my possessions in bankruptcy
Nope. Every state and federal law provide exemptions, a list of property that you get to keep for your fresh start.
Often, personal property has little real, resale value. It’s useful, but not valuable.
If your home has mortgages or other liens, the payoff amount of those debts is subtracted from the value of the house to figure what value the house has.
Bankruptcy trustees aren’t really interested in assets that can’t be sold for a significant amount of money. That’s why 98% of the people who file bankruptcy keep everything they had when they filed.
Fear # 4: I’ll have to explain how this happened to a judge
Most people who file bankruptcy never meet a bankruptcy judge.
Judges get involved only when there is a dispute within the bankruptcy case.
The law assumes that you are entitled to a discharge. You have to do really bad things, like lie on your bankruptcy papers or hide assets, to forfeit the discharge.
Further the law doesn’t much care how you got into debt. Bankruptcy is really focused on the benefit you and the society as a whole get from being freed from debt you can’t really pay.
Some people get into debt through bad judgment. Others get into debt through bad luck. It doesn’t matter.
So long as the debt isn’t a result of dishonesty on your part, it can be wiped out in bankruptcy.
Fear #5: I won’t be able to face myself if I don’t pay my debts
In a perfect world, we would all like to pay what we promised to pay. But it isn’t a perfect world.
Our lives are a tangle of promises and responsibilities. We have obligations to our creditors. We have obligations to our families to care for them. We have responsibilities to prepare for our retirement so we aren’t a burden on others.
Often, we can’t meet those other responsibilities without shedding the old debt. There simply isn’t enough money to do everything we are obligated to do.
Remember that the possibility that you wouldn’t be able to pay your debt was built into the price of the credit.
That’s why credit card interest is so high. The bank knows that not everyone will be be able to pay it back.
So many of the fears about filing bankruptcy are rooted in the fact that you don’t understand how bankruptcy works.
Other fears are fanned by those who profit from you staying in debt or buying their service for a magical, painless non bankruptcy solution. Most of those “solutions” are as real as the ghosts and ghouls that knock on your door at Halloween.
A bankruptcy lawyer can talk with you about your situation and help you plan for a painless bankruptcy filing and a debt free future.
There’s little to fear.
Image courtesy of Flickr and Randy Robertson.