Understanding fact and fiction regarding bankruptcy

Knowing the difference between fact and fiction can help people considering filing for bankruptcy to make the right choice.

Maine residents who may be considering bankruptcy as an option to deal with unmanageable debt levels should first get the facts about different bankruptcy plans. People may hear things about bankruptcy that are not true and that may prevent them from seeking this route when it could actually be the best option for them. In the right situations, a bankruptcy can not only help to have debt discharged, but it can be the optimal way to achieve a better financial future.

Some common myths that people hear about bankruptcies include the following:

  • A home is always lost in a Chapter 7 plan.
  • People can never get a mortgage after filing bankruptcy.
  • Discharged debts will disappear from a credit report.
  • Bankruptcy can clear any form of debt.

These myths are just that. The truth about bankruptcies is quite different.

Homes can sometimes be kept in a Chapter 7 bankruptcy

A Chapter 7 bankruptcy is commonly called a liquidation plan in contrast to the Chapter 13 which is essentially a repayment plan. Chapter 13 is often thought to be the only plan through which a home can be saved. However, as noted by Forbes, bankruptcy laws include different exemptions including a homestead exemption. This allows people to keep homes worth up to specific amounts. Anything with a value lower than the homestead exemption threshold may be able to be retained even through a Chapter 7 bankruptcy.

Debtors can get new mortgages after a bankruptcy

The ability to own a home after a bankruptcy is available to people who have taken the right steps according to the New York Times. Being able to provide information about what led to the bankruptcy filing can help consumers. Additionally, details that make it clear that a consumer is in a better financial situation at the time of a mortgage application will help as well.

Discharged or paid debts will still appear on credit reports

Even debts that are paid or discharged through bankruptcy will still show up on a consumer's credit report. The status for these debts will be listed as handled through the bankruptcy. A consumer should be aware of this before making any new application for credit.

Bankruptcy is not an option for every form of debt

The American Bankruptcy Institute points out that some forms of debt cannot be handled through a bankruptcy plan. Child support, spousal support and student loans are examples of such debts. Debts related to any fraudulent or criminal acts are also unable to be included in a bankruptcy.

Get the facts first

Getting good information and guidance about bankruptcy from a professional is important for Maine residents considering such an option. When faced with high debt, talking to an attorney is advised.

Keywords: bankruptcy, Chapter 7, Chapter 13