Jun 15, 2009 11:59 pm US/Eastern
CBS 2 HD Examines 5 Myths Of Bankruptcy
Consumer Debt Approaching $3 Trillion In U.S., Leaving Many Thinking They Have Little Choice, But Sometimes They Do
NEW YORK (CBS) ―
Bankruptcy petitions are up a staggering 40 percent over the last year.
There are lots of myths about the process that persist. CBS 2 HD has deciphered fact from fiction with the five myths of bankruptcy.
If you're afraid to pick up the phone or open the mailbox because it might be a debt collector, you're not alone.
"I had about $70,000 in credit card debt – house, car, two cars, credit card maxed out," said Harry Escalara of East New York.
Consumer debt in the United States has skyrocketed to nearly $3 trillion. And that has many like Escalara believing the only way out from under the mountain of bills is to declare bankruptcy.
"Bankruptcy was just the final straw," Escalara said.
But is it right for you? Many myths persist:
1. You should be dead broke before filing for bankruptcy.
"It is not good to wait until the creditors are knocking on your door. Try to get to a consumer bankruptcy attorney before your wages are being garnished," said bankruptcy attorney David Shaev.
2. Bankruptcy ruins your credit score.
"I always answer, well what's your credit score now? Invariably, people who see a consumer bankruptcy attorney already have credit problems," Shaev said.
Incredibly, credit scores can generally rise by 150 points upon filing. And Shaev said bankruptcy protects you from creditors while you re-pay your debts and regain control of your finances.
3. You lose your home if you choose bankruptcy.
Depending on your individual income and debt issues -- not necessarily.
"If you're behind on your mortgage we might consider a chapter 13 bankruptcy to catch up," Shaev said.
4. You should max out your credit cards or keep one hidden for emergencies.
"You need to stop using and paying your credit cards. It could be a question of bad faith in the court if you max out your credit cards," Shaev said.
5. And whatever you do, don't raid your 401Ks to pay your bills.
"We can protect your retirement funds," Shaev said.
Bottom line from the front line of big debts??
"Reduce your monthly debt, consolidate. If all else fails, try bankruptcy," Escalara said.
Many trying to avoid bankruptcy will turn to debt management companies, but beware, they collect thousands up front and you can still be sued by your credit card companies.
If you need advice on getting your finances in order, please click
here and
here.
(© MMX, CBS Broadcasting Inc. All Rights Reserved.)
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