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There are a lot of myths surrounding bankruptcy since most of us never think we will need to file and don’t know much about it until we need to find out. Let’s dispel a few of these myths:
Everyone will know I’ve filed bankruptcy – In reality, no one will know unless you tell them or they have reason to run your credit report and see it on there. Bankruptcies aren’t posted in many newspapers anymore because there are simply too many. Unless you are famous, running for a local government position, or have some other reason that the general public would be looking at your history, no one will be looking up whether or not you have filed bankruptcy.
I could lose my job if I file – It’s actually against the law to fire someone due to a bankruptcy!
The court will take all of my possessions – Even though chapter 7 is known as liquidation, they don’t take everything you own. The federal government and states have set aside bankruptcy exemptions to make important possessions like clothing, furniture, a car, retirement accounts, and lots of other property is exempt from being taken and sold in a bankruptcy, up to a certain dollar amount.
It’s extremely hard to file bankruptcy – Filing bankruptcy is surprisingly easy, you can even file on your own without a bankruptcy attorney.
I can max out my credit then file – Nope, sorry. Creditors and bankruptcy trustees consider this fraud. The last 6 months of your purchases will be carefully scrutinized, and you could be facing serious trouble if you are found to be trying to fraud the system.
Only losers and people that can’t stop spending file bankruptcy – Bankruptcy statistics show over 90% of bankruptcy filers have either lost a job, had a major medical issue with large medical bills, or gone through a divorce that forced their bankruptcy.
One of the biggest concerns for those considering filing bankruptcy, is how their credit will be affected after the bankruptcy, and how long it will take to rebuild credit in order to buy a home, car, or qualify for other lines of credits.
Bankruptcy can lower your credit score significantly, up to 300 points, or possibly as little as 100 points, depending on your history of late payments and overall credit rating before filing. Shockingly, bankruptcy filers are often inundated with credit offers immediately after filing! Since you can only file bankruptcy once every 7 years, a lot of creditors including credit card companies and car dealers, lure people into opening credit lines knowing that they won’t be able to file bankruptcy any time soon. Of course, you will pay much higher interest rates for these credit lines.
If you are smart you will wait until your credit has improved before taking out credit lines. In order to raise your credit score after bankruptcy you will need to pay all of your debts on time. You can take out a secured credit card, where you put money into an account, typically $300-$500, and then use the card like a credit card, making the payments each month on time. After 12-18 months you’ll be able to get an unsecured credit card with a low limit and continue to use it monthly and pay it off each month.
By slowly establishing credit, making on time payments, and not carrying credit card debt, your credit score will improve enough to make a major purchase such as a home or car within 2-4 years at great interest rates.
Foreclosure is the process a bank must take, in most states, in order to regain ownership of a home that was mortgaged and is no longer being paid for by the owner. Each state and bank has their own rules on how long a bank must wait before beginning foreclosure proceedings, and what must take place to legally take the home. This is an explanation of what happens most commonly in foreclosure procedures.
Your mortgage company will file a Complaint, Motion and Affidavit in the Common Pleas court where your home is located. Occasionally they may file a Lis Pendens before the complaint to notify you and other needed agencies that a case is about to be filed. You will be served a copy of the complaint and will have five days to file a request for a hearing to dispute the claim that you have not paid your mortgage. (TIP: While some companies file the mortgage documents with the complaint, if your mortgage company has not, you can request they produce the documents to prove they own the mortgage and can legally win a foreclosure. Banks often sell mortgages, and lately foreclosures have been stopped because the banks couldn’t find the paperwork proving they own the mortgage.)
Once you have been notified of the foreclosure proceedings and you decide not to fight it, it can take 2-9 months for the courts to complete the foreclosure, giving you time to find somewhere to live. If you haven’t moved out before the foreclosure is done, the local Sheriff will come to your home, post a notice on your door and force you out of the house.
Once the bank owns the home again they have several options to sell it, including allowing the sheriff to sell it on the courthouse steps, selling it auction, or listing it with a realtor. Some banks also sell their foreclosures privately.