Every so often, life can throw you a curve ball. In recent years the economy has thrown a huge curve ball in the lives of many Americans. It is becoming more frequent for people to live paycheck to paycheck; making it increasingly difficult to make ends meet. As such many American families are finding themselves drowning in debt. For many, bankruptcy is the only answer to their financial problems. However, filing for bankruptcy can be time consuming and a bit confusing for the average person. Below is a list of the most common misconceptions about Colorado bankruptcy.
1. You must be absolutely broke to file for bankruptcy.
It is not a requirement to be financially destitute to file for bankruptcy. Even people who earn six-figure incomes file bankruptcy.
2. When filing for bankruptcy I can exclude certain creditors from my filing.
Nope. All creditors, even the loan your mom gave you, must be accounted for in the bankruptcy filing. As failure to do so can be considered fraud by the court and you risk losing your discharge and in extreme circumstances face jail time as well as a hefty fine. Don’t do it!
3. If I file for bankruptcy and all my creditors are discharges, I will end up cheating a family member who loaned me money.
This is not true, there is no law against paying a creditor for a discharged debt. This can be accomplished through a reaffirmation, which is formally signing back on to liability for the debt. But it does not have to done this way.
4. If you file for bankruptcy your credit will be ruined and it will be impossible to qualify for credit in the future.
This is just a lie. Yes the bankruptcy will appear on the person’s credit for up to ten years, but it will not destroy their financial future. In fact, many people with bad credit prior to filing will have better credit scores within 6 months of filing bankruptcy.
5. Filing for bankruptcy will make it impossible to purchase a house in the future.
Yet another lie, many financial institutions are willing to take on the risk of a person who has previously filed for bankruptcy so long as the borrower is otherwise qualified (i.e., income, down payment, etc.). In fact, debtors who file for bankruptcy can become eligible for a mortgage within 3 years of filing.
6. You cannot discharge tax debt.
There are certain taxes that are dischargeable, like personal income taxes that were due at least three years ago. However fiduciary taxes or sales tax as they are commonly referred to are not usually dischargeable.
7. Student loans are non-dischargeable.
Generally speaking this is true. However, like every other rule there are exceptions. If the Debtor can prove undue hardship, student loans can be eliminated in Bankruptcy. This is normally an uphill battle but certainly not impossible.
For further questions please contact your Colorado bankruptcy attorney.