Common Misconceptions about the Bankruptcy Process

Interviewer: What are the top misconceptions people have about filing bankruptcy that you have to dispel or educate them about when they come see you?

When You File for Bankruptcy, You Will Be Able to Keep your Home

Vance: First of all, one of the biggest things is that they can't keep their homes. I am always asked, "Am I going to lose my house?" I tell them, "Look, if you can afford to pay for your house and keep your house, and keep current on the payments, you're not going to lose it in either bankruptcy option." That's one of the big things.

Will I Lose My Job and My Ability to Have Credit?

Am I going to lose my job because I'm filing bankruptcy? No, no, you're not. Am I ever going to recover? That's a big question. Will my credit score ever recover? Yes. Your credit score will recover.

Your Credit Will Be Restored in Two to Three Years after a Chapter 7 Bankruptcy

The national average for recovery after a bankruptcy, after a Chapter 7 bankruptcy, is two to three years.

I have clients that file Chapter 7 bankruptcy, and in two years they're buying new homes. You will recover, everybody recovers. It just takes discipline, and for you to take advantage of your fresh start and don't dig a hole with debt like what forced you into this.

In Some Cases, People Owe More on Their Homes Than the Homes Are Worth and Are Looking to Walk Away from Crippling Mortgage Debt

Interviewer: Are there any other misconceptions?

Vance: Questions about losing their homes are the most common. If you can afford to pay for your house, you're going to keep it. I do have clients that want to get rid of their houses because of the housing bubble that burst, and many of them owe far more than the home is worth.

Post-Bankruptcy, You Should Be Able to Buy a Car or a Home and Have Your Credit Restored

Some of them said, "I might as well just let it go and buy one in two or three years after this is over." Because home values are down. One of the big misconceptions is that they'll never be able to buy a house, they'll never be able to buy a car, and they'll never get any credit anywhere. Well, that is not true, because you will.

A Bankruptcy Filing Will Stay on Your Credit Report for 7 to 10 Years but Credit Will Be Available to You after 2 to 3 Years

Interviewer: That's something that I've heard, that once you file bankruptcy, your credit is gone forever, but it's not true.

Vance: No, but it does stay on your credit report for 10 years. There's nothing we can do about that. Any reporting on your credit report stays on there for 7 to 10 years. Bankruptcy will be on there for 10 years, but it will not affect you for the full 10 years. It will only affect you for about two to three years after the bankruptcy is over.

You May Be Viewed as a Better Candidate for Credit after You File for Bankruptcy

Interviewer: Is it true that once you file bankruptcy, a lot of lenders are more apt to lend to you because now they know you can't file again for a long time, and you've gotten a lot of relief from debt, you're a better candidate.

Vance: That's true. I have a lot of clients that come in here that mortgage companies have referred them to my office because their debt to income ratio is so high. They say, "Look, go get rid of this credit card debt, and we'll give you a loan."

Even car dealers have sent people to my office saying, "I can't give you a car because you have all this credit card debt. See what you can do about getting rid of it and you can finance anything you want."