I have been a consumer bankruptcy attorney for over 23 years and during that time I have heard all kinds of unfounded fears that my clients had about Bankruptcy. Most of these fears or concerns came from misinformation that my clients received from friends, family or business associates. But there is also a lot of misinformation on the internet, and believe it or not, many people actually listen to what bill collectors tell them about the evils of bankruptcy. Talk about a segment of people that are notorious for providing misinformation or for that matter, out and out lying, that is collection companies and bill collectors. If there is one thing, I can’t stress enough to you, it’s please do not listen to anything a debt collector says to you, there one and only goal is to get you to make a payment to them, so they can make a commission. Next to nothing that comes out of there mouths is accurate or true, especially when it comes to Bankruptcy. Almost to a person, when I finish a consultation with a client, they leave my office saying, if I had only known the truth about Bankruptcy before this meeting, I would have filed for Bankruptcy a long time ago and saved myself a lot of stress and many sleepless nights. So here are some of the popular myths about bankruptcy that I often hear:
1) Bankruptcy will ruin my credit forever: FALSE! While it is true that a bankruptcy filing can stay as part of your credit history for up to 10 years (Chapter 7; a chapter 13 stays on for 7 years), that does not mean that you will have bad credit for 7 to 10 years. Anything that gets reported stays on your credit for 7 years. So a late payment on a credit card, a missed mortgage payment, etc. stay on your credit report for 7 years. The truth is that once you file bankruptcy and receive your discharge, YOU are in control of your credit. The bankruptcy has given you a fresh start. You scores will initially increase post discharge, because all of your debt has been wiped out, so your won’t have anyone reporting negatively anymore and you won’t have the sheer amount of debt weighing your credit score down.
You will also need to be pro-active after your bankruptcy discharge. You should take out a couple of secured credit cards or credit cards with low balance limits and then make your payments on time, every month, you scores will start to go up. You will not want to keep a balance on those cards of more than 35% of the credit limit, as if you do that can be a drag on your credit score. If you continue to make those monthly credit card payments on time, your scores will continue to go up. In most cases, my client’s scores increase by 150 to 200 points within the first 18 months after filing of their bankruptcy. I have handled many closings for client’s that have bought homes after filing for bankruptcy so don’t believe anyone that tells you that your credit will be ruined forever!
2) I will be unable to get a job after filing for bankruptcy: FALSE! in 23 years I have NEVER had a client tell me they could not get a job because they filed a bankruptcy. In fact, I have actually had clients tell me that they were advised by prospective employers to file bankruptcy to clean up their credit, because they would be a much better candidate at that point. There have been studies done and those studies revealed that only 9% of employers even look at a credit report when determining a candidates qualifications for a job. When something did appear on the credit report, 87% of employers surveyed indicated that it would either not be a factor or that they would ask the prospective employee about the circumstances that led to the bankruptcy filing so that they could understand. Thus, a bankruptcy filing is virtually a non-factor in determining your ability to get a job in the future.
I would even argue that filing a bankruptcy would be a positive in finding future employment for the simple reason that you will be in a better mental state. Most clients that come in for the initial consultation are unbelievably stressed, haven’t been sleeping and in some cases are even angry or depressed. I don’t think that you can argue that none of these traits would be traits that would translate well during an interview with a prospective employer, nor would they be traits that an employer would be looking for in a new employee. Conversely, once my clients have filed for bankruptcy, their whole demeanor changes. The stress is released, they are no longer worried about how they are going to meet their monthly bills, they no longer have the stress of the constant phone calls, they are able to sleep at night because they are dealing with their financial issues, they have taken control of their lives back. Many clients tell me they are more productive at work and are happier, as they are able to live life again. This is the type of person that will appeal to a prospective employer!
I will continue this article with more myths to be debunked tomorrow! To be continued…