Common Misconceptions About Filing A Bankruptcy

Interviewer: What misconceptions have you seen from people that come in about the bankruptcy process?

John Reade: “There are a lot of misconceptions about bankruptcy. Some people think all an attorney will be doing is filling out paperwork. They think they can do this themselves.”

Sometimes I hear: “Oh, I didn’t realize I had to get you copies of documents, or other pertinent information. Why can’t you just get that information for me and file it?” Those are things that I hear sometimes.

While a Bankruptcy Filing Stays on a Credit Report for 10 Years, it Will Not Ruin Your Credit Rating

Interviewer: What about a person’s credit? I’ve heard that, because one has filed for bankruptcy that a person believes their credit is destroyed forever. Is this true?

John Reade: No. While a bankruptcy remains on a credit report for 10 years, it takes about three years to rebuild one’s credit. What that means is, after you get your bankruptcy discharge, it takes three years after that to rebuild their credit. After three years, a person could then get a loan at a decent interest rate, as opposed to being a high-risk and having to pay an extremely high interest rate.

Filing for Bankruptcy Can Help You Build a Better Financial Foundation For the Future

Interviewer: It actually sounds like bankruptcy may eventually be positive rather than being necessarily negative.

John Reade:    That is correct. If someone who should have filed for bankruptcy has not and  applies for a loan, the lender will run a credit report. When the lender sees what the applicant’s income is versus that person’s outstanding debt, there is no way that a creditor is going to give the person a loan at a reasonable rate. If the creditor will make the loan, the lender will classify the borrower as a “high-risk” borrower.  That means the lender will charge a very high interest rate.  This will prove very costly to the borrower. As long as it appears that an applicant for credit whose debts are extremely high relative to that person’s income, that person is going to have an extremely hard time getting credit of any sort, let alone at a reasonable interest rate.

Interviewer:   What other misconceptions do people have? I know people see it as a last resort. It’s embarrassing for them. Is there anything else that people think about bankruptcy that’s not true?

John Reade: Sometimes they think, “If I file for bankruptcy, everyone’s going to know. It’s going to be published in the local newspaper, or somewhere else where someone will find out.”

People who file for bankruptcy are not published in the local newspaper. Generally–unless someone wants to find out that someone filed for bankruptcy—it is not going to be information that is going to be disseminated to the public.

Interviewer: So it’s public record. But it’s not available unless someone wants to find out if someone has filed for bankruptcy and searched for that information.

John Reade: Correct.

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