Common Misconceptions about Filing for Bankruptcy

Interviewer: What are some common misconceptions that people have about bankruptcy?

Will Your Credit Be Forever Ruined? It Is Easier for Your Credit to Recover after Filing for Bankruptcy than It Is after a Foreclosure or Judgment

Vance Truman: One of the biggest worries is that they'll never be able to buy a car or a house. That's one of the biggest misconceptions. It's easier to recover from a bankruptcy than a lien or judgment against you, foreclosure, or anything like that. I have people that file Chapter 7 bankruptcy, and within two to three years, they're buying new homes. They've filed Chapter 7 bankruptcy.

They're buying new cars right after the discharge. Of course, the interest rates that they're paying are a little higher than what someone would pay with good credit, but they're not outrageous. That's one of the biggest misconceptions-that they'll never recover financially. Everybody recovers.

It Is Important to Stay within a Budget after Filing for Bankruptcy and Not to become Overextended with Credit Debt

That's when you have to pay attention to your credit counseling session that you went through. It is important to set up plans, set up a budget, live within your means and don't become overextended with credit again.

It's all right to have credit cards. They're useful for emergency purposes. Don't make the new pair of shoes you need an emergency, or the pizza you need on Friday night an emergency. All those purchases start adding up.

Many People in Need Are Hesitant to File for Bankruptcy until They Learn about the Benefits

Interviewer: Do you think that because of this that bankruptcy has developed a bad social stigma sometimes with people or in the media?

Vance Truman: People are afraid of the unknown in any situation. I always regularly tell my clients, "Look. It's free to come in here and talk to me. Come in here and I will give you examples of people recovering from bankruptcy."

I see clients all the time outside the office. This is why I love bankruptcy work. 99.99% of them are happy after I take them through the bankruptcy process. I'll see them out in the street, and they'll say, "Thank you so much for guiding me through this process."

I just saw a client about a month ago. He said, "Look. My credit score is up to 750." He's been out of bankruptcy about three years. He said, "I just bought a new house. Things are going great. Thank you so much for guiding me through the process." That's the feeling most of these people have. This is just a minute part of it that's going to give you a great relief.

How Much Debt Do You Have? It Could Literally Take over 70 Years to Pay back $50,000 Worth of Debt

If somebody has $50,000 of credit card debt, and they're paying $1500 to $2000 a month for just the minimum payments, it's going to take them 75 years to pay that back.

In Chapter 7 they can be debt free in five months and in Chapter 13, three to five years. That's just a small portion of their income-earning lifespan. That's $50,000 that could be used towards their child's education, or their retirement, or something similar, instead of paying it to the credit card company.

People come in and they say, "Well, I was always afraid of filing bankruptcy, because I thought I'd never be able to buy anything." I said, "No. You will be able to buy anything. You will be able to own a home. You will be able to own a car. It just takes time."