Filing for bankruptcy in Texas can be tricky- you might feel scared of the consequences yet may not see yourself with a lot of options. You might have endless questions about the personal insolvency procedure after hearing and reading about lots of bankruptcy-related incidents shared by random people on the internet. People looking for debt management advice tend to fall into the hole of myths and misconceptions regarding bankruptcy. This can take a serious toll on one’s mental health and be the source of address pressure. To simplify things, we have compiled the six most common bankruptcy myths below:
Filing for Bankruptcy is as Simple as Filing Out Some Forms
The truth couldn’t be more different. While there are loads of benefits of filing for bankruptcy as a last resort for those undergoing severe financial distress, your battle does not end after you fill out the forms. In fact, that is just the start. Even if you file for basic Chapter 7 bankruptcy, it might lead to a long litigation process. The forms you submit to the federal court need to be as truthful as possible otherwise, there might be severe legal implications. Every element of bankruptcy forms is individually scrutinized by a board of trustees who can object to and revoke your claims at any given moment.
You Can Get Away with Hiding Assets
Don’t do it! It is absolutely essential that you remain honest with your trustee about which assets you personally own. If you decide not to fully disclose your assets and your trustee comes into contact with some hidden assets, you could get into serious trouble. Your trustee has the authority to suspect your bankruptcy order for an unlimited period. This means that you can sit back and prepare to be patient as there might be no end in sight. The trustee will then personally handle your finances and lodge a realistic debt management plan. As a consequence of non-disclosure, you might also have to attend a public examination where you and your properties will be heavily scrutinized. If you decide not to show up, an arrest warrant can be issued.
The Whole World Will Find Out
Another common misconception is that everyone, ranging from your close relatives to work colleagues to the person you once met on the street, will find out that you’ve gone bankrupt. This is not true. Your information will only be filed on the Insolvency Register to help notify your creditors. However, none of the people you know will be aware of your financial status. In fact, your employer might not also find out unless you show him a court-approved Chapter 13 plan that requires you to pay your creditors. Local newspapers do not publish the names of those who have filed for bankruptcy unless you are Donald Trump or Madonna. To alleviate your worries, seek debt management advice from your trustee.
Declaring Bankruptcy Means Losing All Your Assets
There have been numerous cases where the debtor files for bankruptcy but does not lose a single piece of property, including cars and homes. According to Chapter 7 Bankruptcy, only non-exempt property can be sold while you are allowed to keep everything else. Once you file for bankruptcy, your property is viewed as the “bankrupt’s estate.” Any property obtained during the personal insolvency period will also be put into that category. Even though the board of trustees will assume control of your assets and freeze your accounts temporarily, this is only to inspect any possible unusual activity. You will have control over tools of trade such as things needed for your business or employment so that you can continue working and generating an income. However, if you own a high-value car that is deemed unnecessary by the federal court, you might have to downgrade to a mid-price hatchback suitable for work and travel. Essentials needed to run your household such as clothing, furniture, beds, and any home equipment, will also not be taken.
You Will Be Unemployed
The biggest bankruptcy myth! Think about it- why would your trustee or creditors be on board with this decision? By preventing you from working, you will not be able to generate income to repay creditors and follow your debt management plan. However, there are a few exceptions. Those who have been appointed the seat of directors will be asked to step down. If you wish to hold on to your seat, you will have to ask the court for an exception. Bankruptcy also affects positions in the finance sector, so it is best to make some preparations. You might also come across some hurdles that make seeking more credit complicated. To address concerns about your career, job, and credit options, it is best to seek insolvency advice before filing for bankruptcy.
You Can No Longer Receive Credit
There’s no denying that filing for bankruptcy will affect your ability to gain credit. If you file for Chapter 7, you can expect it to remain on your credit report for 10 years. This could affect your chances of receiving credit as future lenders will not be as comfortable with lending you money. As a result, you might also have to pay higher interest rates. However, within one year of filing, you will be able to access credit and gradually rebuild your FICO score. The chances of you facing complications when acquiring a credit card are low. This is because the ability to borrow cash depends on the debt to income ratio. If you have a significant amount of debt, your future lenders might doubt your ability to pay back an additional debt. Even if you can borrow money after declaring bankruptcy, it is advised not to jump in. Bankruptcy provides a fresh financial start and a chance for you to turn your life around. Hence, try not to overburden yourself with a high-interest debt otherwise, things can get out of control very quickly.
Have More Questions?
If you have any more questions or reservations about filing for bankruptcy, feel free to read up more on the Texas Bankruptcy Law here.