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Why people file for bankruptcy and other myths

Across the country, including New Jersey, the number of people filing for bankruptcy this year is estimated at 1.21 million, slightly down from 1.38 million filers last year. As many of you in Burlington County know, we don’t file for bankruptcy because we love running up our credit cards. In fact, most of us file because we are going through huge life changes like losing our job, getting divorced or suffering a serious illness. Last year, nearly 20 percent of all Americans had difficulty paying their medical bills, according to the Centers for Disease Control and Prevention.

While most of us look forward to a fresh financial start after bankruptcy, filing Chapter 7 or Chapter 13 doesn’t necessarily eliminate all of your debt. Currently, Congress is considering proposed federal legislation to allow student loans in bankruptcy filings. But, they currently are not forgiven. Sometimes, neither are your back taxes.

Some people think if they have a hey-day and go on a spending spree just before filing for bankruptcy, they won’t have to pay for those items. Guess what? Bankruptcy court officials aren’t that stupid. It’s called fraud.

However, if you are honest and facing serious economic hardship, it won’t take long for you to rebuild your credit score and get approved for a mortgage, a car loan, and even get new offers for credit cards.

While filing Chapter 7 or 13 can certainly help you reduce or reorganize your financial situation, it does take sacrifice on your part. It could mean losing your house or living very frugally for a few years. But it can be done and allow your family peace of mind with your new economic sense and a fresh financial start.

Source: USA News & World Report, “5 Bankruptcy Myths Debunked,” Susan Johnston, May 14, 2012

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