There are many myths about bankruptcy that need to be set straight. Here a few of the more common ones.
MYTH: Bankruptcy will destroy my credit and I will never be able to finance a home or a vehicle.
Reality: If you have a job and file bankruptcy, it is very likely creditors will want to loan you new money before your bankruptcy even makes it through the court process to discharge. Why is that? Because creditors know that once you file bankruptcy you cannot file again for 8 years. If they loan you new money after you file and you default on the new loan, they can garnish your wages for up to 8 years and there will be nothing you can do to stop them. In some ways, an employed person who has filed bankruptcy is a better credit risk that someone who has not filed filed bankruptcy.
MYTH: I will not be able to keep my house if I file bankruptcy.
Reality: In Michigan, you can keep over $22,000 in equity in your home and still qualify for Chapter 7. Here is an example of what that means: Let’s say your home is worth $100,000 but you have a $90,000 mortgage on it. Your equity in the home is $10,000. Since your equity is less than the $22,000 cap set by the Bankruptcy rules, you can qualify for a Chapter 7 bankruptcy and keep your house. You will have to reaffirm the mortgage (keep the mortgage and keep paying the house payment) but you will still be able to file for bankruptcy and keep your house.
This same logic applies to other things you own like motor vehicles, jewelry, household goods, firearms, sports equipment and most other belongings.
MYTH: I make too much money to qualify for bankruptcy.
Reality: The US bankruptcy Court sets the income limits for people who want to file for Chapter 7 bankruptcy. They are really quite generous limits. For example, if you are a single person with no dependents you can earn $44,718 and still qualify, a family of 4 can earn $75,960 and a couple can earn $53,310.
People that earn more that these limits may still qualify for bankruptcy under Chapter 13. Chapter 13 relief is a debt restructuring tool that allows you to cap your debt, retain enough income to pay all your reasonable living expenses and repay a portion of your original debt over a 3 to 5 year plan. It is an excellent way to pay down your debt while making your living expenses.