What Your Creditors Don’t Want You to Know About Filing Bankruptcy


What Your Creditors Don’t Want You to Know About Filing Bankruptcy

Contrary to what many people assume, bankruptcy is far from a mark of embarrassment or humiliation. The reality is that bankruptcy enables hardworking people to alleviate their financial condition by discharging or restructuring insurmountable debts. In most cases, those who file bankruptcy are not crooks or gamblers, but honest people who simply made one or two financial mistakes. As we see in the recent statistics on bankruptcy filings, these kinds of financial missteps can literally happen to anyone. One reason why people don’t file for bankruptcy is because they don’t know enough about the process itself. Here are a few things that creditors don’t want potential filers to know about.

Filers Receive an Automatic Stay

  When you file bankruptcy, you will receive an “automatic stay,” which basically means that your creditors must temporarily freeze their efforts to collect your debts while the bankruptcy process is underway. This automatic stay applies to all debts, even those which aren’t eligible to be discharged under normal circumstances, such as student loans. Although your creditors can restart their efforts to collect debts in the event that your bankruptcy discharge isn’t successful, you will always have this temporary stay, and so filing for bankruptcy can still provide benefits even if a discharge isn’t granted.

Filing for Bankruptcy is (Relatively) Simple

  Many laypeople assume that filing for bankruptcy is a highly complex process, something which involves countless moving parts and a mountain of paperwork. Although it’s true that the process has multiple steps, and does involve some paperwork, it’s simply incorrect to say that filing for bankruptcy is overly complicated. This is particularly true if you have the assistance of a bankruptcy attorney. But, even for those who attempt to file alone, without professional assistance, the process can still be completed independently (even though doing so is not usually recommended, because a single error can spell the end of the bankruptcy).

Chapter 7 Bankruptcy Eliminates Debts

  Not everyone is aware of the fact that bankruptcy can eliminate debts entirely, which means that the debtor is forgiven and not expected to repay at all. This is the case for Chapter 7 bankruptcy. Some people assume that bankruptcy merely restructures debts – as it does for other types of bankruptcy, such as Chapter 13 – rather than eliminates them, but this isn’t the case. Of course, depending on the circumstances, a person who files Chapter 7 may have to forfeit certain property, but even this isn’t always the case.

Bankruptcy Won’t Affect Your Credit Forever

  This is a big one. Many laypeople assume that a bankruptcy will have a permanent negative impact on a person’s credit report. This is precisely the kind of false impression which many creditors would love to perpetuate. The truth, however, is that a bankruptcy won’t affect your credit report permanently, although it will almost certainly affect it temporarily. The exact degree of the impact can vary. The good news is that while the bankruptcy might be visible on your credit report for a certain period of time, you can begin repairing and improving your “credit score” immediately after a discharge. Lenders use your actual “credit score” to determine whether or not a person is credit worthy. So, while the bankruptcy filing may be visible on your credit report, it does not necessarily continue to negatively affect your “credit score” after a year or two out of bankruptcy. In fact, many debtors will begin to receive credit cards offers soon after a Chapter 7 discharge because the creditors know that this person no longer owes any other unsecured creditor. That can make a newly discharged debtor a good prospect for creditors’ profit-making models.

Contact Financial Freedom Advocates for More Information

  If you’d like to learn more, contact Financial Freedom Advocates today by calling 786-668-6688.
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