Myth: Bankruptcy will erase all my credit and I will start with a clean slate.
Fact: The credit report still reflects all debts after filing bankruptcy. Each debt included in the case will be labeled "account included in bankruptcy". The date filed and case number for the bankruptcy remains on the credit report for 7-10 years, depending on the state in which you reside. This can make you a high risk borrower for future loans, and you may not receive the best rates IF you get approved for credit at all.
Myth: I won't have any more monthly payments if I file bankruptcy and all my problems will be solved.
Fact: Any debts secured by a car, home, motorcycle, etc., must be kept current in order for you to keep your asset. Otherwise, the lending institution can eventually repossess or foreclose on your property. Many times, lenders place a second lien on autos or homes in order to grant loans. These debts are considered secured and most often have to be repaid.
Myth: If I make late loan payments, my credit is already ruined so I might as well file bankruptcy.
Fact: A few late payments to your creditors definitely do not ruin your credit. A credit report with a bankruptcy filing is much worse than a report with some late payments while you were going through a difficult time. Most lenders understand difficult times and will work with you as long as your explanations for late payments or slow credit makes sense. If you work with your creditors to catch up, you will be able to regain your credit worthiness.
Many individuals file bankruptcy as a solution to stop annoying collection calls or to fix a temporary financial problem, but do not consider the long-term effects of this action. Your creditors will most likely work with you through financial hardships. Many approve reduced payments for a temporary period, waive fees, and/or reduce interest.
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