Many people have misconceptions about bankruptcy and how it will affect them.  Let’s look at some of the leading myths about bankruptcy.

Myth #1: You can file for bankruptcy as often as you like

To prevent abuse, there are rules that govern how often you can file for bankruptcy.  According to the new bankruptcy laws (that were passed in 2005), you must wait longer between bankruptcy filings.  You can file for Chapter 13 bankruptcy once every two years.  For Chapter 7 bankruptcy, you can file once every eight years.  Multiple bankruptcy filings can severely damage your credit score, since each filing can remain on your credit record for up to 10 years.

Myth #2: All debts are completely eliminated a Chapter 7 bankruptcy.

This is one of the biggest bankruptcy myths.  Unfortunately, certain types of debts cannot be eliminated in a Chapter 7 bankruptcy.  Debts that cannot be discharged include: alimony, child support, student loans, and debts that were acquired as a result of fraud.

Additionally, debts that were acquired from legal settlements are rarely discharged.  Therefore, if you owe money to someone as part of a legal settlement, it’s unlikely that this type of debt will be discharged.

Myth #4: You can keep your car and house without having to pay off the loans (when including them in your bankruptcy filing)

You cannot keep your house or car without paying the loan.  In most cases, as long as you are current on your car payment and home loan, then you can keep both your car and home.  If your vehicle is repossessed and you file for bankruptcy before the car is sold, then you may be able to re-claim your car.  In order to re-claim your car, you must agree to pay off the loan.  You will also need to make sure that you have insurance on the car.

Myth #4: Filing for bankruptcy will ruin my reputation.

Unless you’re a famous person, a well-known corporation, or a celebrity, most people will never know about your bankruptcy.  Only your creditors and attorney are likely to know that you filed for bankruptcy.  There are thousands of consumers filing for bankruptcy each month, so it’s highly unlikely that anyone will notice yours.  Even though bankruptcy is a public legal filing, most newspapers don’t have the time, or space to publish all bankruptcy notices.

Myth #5: I’ll never be able to buy a home (or qualify for new credit) if I file for bankruptcy.

This is completely false.  Most people believe that bankruptcy means you can’t buy a home for at least 10 years.  However, you may be able to get a home loan beginning two years after a Chapter 7 bankruptcy has been discharged, and one year after filing a Chapter 13 bankruptcy.  FHA and VA mortgage loans can be obtained as soon as one year after filing for either Chapter 7 or Chapter 13 bankruptcy.  However, it may be a while before you qualify for low interest rates on credit cards and other unsecured debt.