FLASHBACK FRIDAY: FALLACIES REGARDING PERSONAL BANKRUPTCY
We have heard lots of misbeliefs about a person’s declaration of bankruptcy. Let’s debunk the myths one by one in today’s Flashback Friday edition of ForexPedia.
House and Car Will Be Seized
There are two kinds of filings in bankruptcy: Chapter 7 and Chapter 13. Chapter 7, also referred to as liquidation bankruptcy, is a proceeding where the debtor’s assets (if any) are sold. Proceeds will then be disbursed to creditors, as seen in the priorities outlined in the Code. Chapter 13, also known as a wage earner’s plan, allows a person who earns a regular income to propose a repayment plan to settle his debt obligations, helping them to eliminate debts eventually.
401(k) or Retirement Assets Will Be Lost
Some assets are immuned from bankruptcy, including the 401(k) plan and individual retirement account. That way debtors can have a sound retirement even if you are bankrupt. However, bear in mind any amount of money taken out of these accounts ahead of the proceeding are not exempt and must be put in black and white.
Credit Rating Will Be Dented
Bankruptcy proceeding results in a negative effect on your credit rating. But take note a person’s credit history will be discarded after 10 years. Still, lenders will be able to view the current situation of an individual’s bankruptcy. In case the proceeding has been finished and you are discharged of all your debt obligations, an institution may be more than willing to lend to you even if the 10-year period has not yet ended.
Bankruptcy Can Only Be Filed Once
Any individual can declare bankruptcy more than once. There is a limitation though. If seeking a Chapter 7 relief, you must not have filed another one in the last eight years. Chapter 13 is available for people who have not been released from such a proceeding in the last two years or a Chapter 7 in the last four years.
No One is Prohibited From Filing Personal Bankruptcy
Before, only some people are permitted to file for bankruptcy. But amendments to law enable all debtors to seek debt relief by filing either Chapter 7 or Chapter 13. Still, such proceedings can greatly affect your finances and financial condition in the future. It is advisable to consult a credit advisor before undergoing a bankruptcy proceeding (if needed).