Personal finance “experts” love to run around spouting off about bankruptcy and other issues they don’t know much about. While many of them do promote best practices when it comes to finance, many of them share blatant falsities about bankruptcy like this guy does.
Number one, they often don’t even know basic facts about bankruptcy. It’s complicated, so many people just spew what they think they know about bankruptcy and pass it off as legitimate advice.
Number two, these so called “experts” make bankruptcy sound like it should be your last choice. We have written about why bankruptcy should never be treated as a last resort. Instead, bankruptcy should be considered alongside a number of tools to help you improve your financial position. Instead, they just continue to spread misconceptions and myths.
So, considering I’ve been practicing bankruptcy for 11 years and I’ve handled more than 2,000 cases, I’ve got a few things to discuss that these finance “experts” should know.
1. In 97% of bankruptcy cases the debtor loses nothing.
Chapter 7s are considered a liquidation bankruptcy. In theory, if you have a valuable asset that is unencumbered by liens, the trustee can sell that asset to recover money for your creditors. The problem is, most Chapter 7 clients, don’t have enough assets to sell for two reasons. First, most assets either have liens on them or aren’t really worth much and second, you have generous exemptions here in Georgia.
2. If you have any assets, you can just file a Chapter 13 and keep them.
If you do have assets and they could potentially be at risk in a Chapter 7, you can just file a Chapter 13 and then they’re protected. You simply repay the value of the items you wish to keep at an extremely low interest rate and then you emergen from your bankruptcy with a discharge.
3. The means test just determines which chapter you are eligible for.
The means test doesn’t keep you from filing bankruptcy. Period. It’s just there to make sure that wealthy or high income people don’t abuse Chapter 7s. Even if the means test determines you don’t qualify for a 7, you can still do a 13 and pay back only a fraction of your debt.
4. Credit scores improve immediately.
We have written about this and we want to state it again. Studies by the Consumer Financial Protection Bureau have shown that your credit score starts going up the month you file bankruptcy. Yes, a bankruptcy can stay on your credit report for up to 10 years, but as we say so often, time heals all wounds and your bankruptcy will matter less and less as time goes on.
5. You can get a loan, even in if you’re still in your bankruptcy
Filing bankruptcy changes how much you’ll pay for credit. It doesn’t mean you can’t get credit at all. People in Chapter 13s routinely take out (court approved) debt to buy cars in the event of an accident. Just because you’ve filed bankruptcy doesn’t mean you’re not able to get credit at all.
6. Stress is a health risk
We have only recently begun taking mental health seriously in our country. Stress, particularly stress related to money, can take a substantial toll on our mental and PHYSICAL health. Stress leads to bad choices, mental health problems and unhealthy habits like drinking or drug use to cope. Bankruptcy can help you get your financial house in order and lowers stress, immediately.
7. Bankruptcy frees up cash to pay debts that can’t be discharged
Some debts can’t be discharged. It’s just the way the bankruptcy code is written. The bright side of this is, you’re freeing up cash you can use to pay off those debts by filing bankruptcy.
Bankruptcy isn’t the last resort. ever.
Bankruptcy offers a quick, legal and certain fix for debts that have swamped you. Every day we see people who have spent their retirement savings or strung along debts that have kept them from being able to start over. Bankruptcy should always be in the discussion when it comes to eliminating overwhelming debt. After all, cutting $5 lattes is a good practice to keep yourself on a budget but it isn’t going to fix a mountain of uncontrolled debt, no matter how many “experts” try to claim it will.