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Common Misconceptions About Chapter 7 Bankruptcy

When you have significant debts that you just can’t pay, filing for Chapter 7 bankruptcy might be a good option to help get your financial life back on track. In the Tampa area, consumers with high credit card bills and piling medical debts file for personal bankruptcy everyday. Yet many Floridians have heard myths about bankruptcy, and these misconceptions can prevent them from speaking to an experienced Tampa bankruptcy lawyer.  It is important to learn your debt relief options as early as possible.

It’s true that Chapter 7 bankruptcy can give you a clean start when it comes to your finances, and this opportunity does have its costs. But it’s important to know that filing for consumer bankruptcy also can ease the burden and anxiety of massive debt. How can you know what’s true and what isn’t true? An article in U.S. News & World Report recently debunked some of the most common misconceptions when it comes to personal bankruptcy. While you should always discuss your case with an experienced Florida bankruptcy lawyer, it’s also a good idea to have some background knowledge about how bankruptcy will (and won’t) affect you.

Now, let’s take a look at some of those bankruptcy myths:

1. Floridians who decide to file for Chapter 7 bankruptcy have been financially irresponsible.

Given that our country only recently emerged from a serious financial crisis, it shouldn’t come as a shock that many Floridians continue to experience financial problems. Whether you got behind on your mortgage because you were laid off from work, or you’re unable to pay thousands of dollars in unexpected medical bills, you’re not alone. And, to be clear, your debts certainly don’t mean that you haven’t been careful with your money.

According to Walter W. Miller, a bankruptcy law professor at Boston University School of Law, “there’s always going to be some kind of abuse” when it comes to consumer bankruptcy, “but it’s far more likely that people run into very serious personal problems in one of three areas: losing their job, going through a divorce, or suffering a serious illness.”  Most of our clients are hard-working business owners or employees who have tried to pay their bills on time.  However, getting dealt a bad hand is often outside of their control, such as the COVID-19 pandemic, Hurricane Irma, or Red Tide.

In April of 2016, more than 5 million Americans had been unemployed for at least 6 months. While those unemployment figures have dropped in the last few years, medical bills continue to rise. Indeed, the Centers for Disease Control and Prevention (CDC) recently estimated about about 20 percent of American households are dealing with significant medical bills.  And this is not even considering the COVID-19 economic crisis of 2020.

2. Bankruptcy will ruin your credit for the rest of your life.

Experts tend to agree that people who file for bankruptcy are often surprised by how quickly they’ll start getting credit card offers in the mail again.  The truth is that a bankruptcy will not hurt your credit score, but oftentimes will improve it.   This is especially true if your debt-to-income ratio is high, because the bankruptcy will wipe away your overleveraged debt load.   To be sure, filing for Chapter 7 bankruptcy just won’t permanently ruin your credit. While it may be more difficult to find good interest rates and loan terms soon after you file for bankruptcy, typically within a few months after your case closes you’ll be able to obtain a credit card again. And if you continue to make regular payments, you’ll build up your credit history and find that it’s easier than you thought to obtain larger loans, like a car loan or a mortgage.

3. If you file for Chapter 7 bankruptcy, all of your debts will be discharged.

While most debts are dischargeable through a Chapter 7 bankruptcy, some debts simply cannot be discharged. In general, the following debts typically aren’t dischargeable:

  • Alimony;
  • Child Support;
  • Restitution payments;
  • Tax debts as a general rule; and
  • Student loans (with some exceptions).

In some cases, student loans are the exception. While they’re extremely difficult to discharge through consumer bankruptcy, you should speak with a consumer protection lawyer about your case.

Tampa residents often have many misconceptions about Chapter 7 bankruptcy, and the ones we’ve discussed here represent only a few of the myths that tend to circulate. If you are considering Chapter 7 bankruptcy, you should speak with an experienced Tampa bankruptcy attorney at Samantha L. Dammer as soon as possible about your options.

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