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Dispelling the common misconceptions of bankruptcy

As discussed last week on this blog, it is important to understand how to eliminate debt from the start. While filing for bankruptcy in the proper manner is vital, individuals also want to know what happens after they receive a discharge of their debt. In particular, individuals may be concerned with what happens to their credit after filing for bankruptcy.

Typically, bankruptcy results in a discharge of most types of debt. However, certain types of debt might not be eliminated, such as spousal support or tax bills. Student loan debt may also not be subject to the debt discharge.

After the debt discharge, however, individuals may believe their credit is doomed. Fortunately, this is not the case.

After debt is discharged, individuals can begin rebuilding their credit. Within as little as a year, individuals can qualify for good interest rates on a car loan. This loan, in turn, can help individuals build their credit even more, which can help them qualify for good rates on a new mortgage. Effective use of credit cards can also help individuals rebuild their credit. Accordingly, bankruptcy does not doom a person's credit.

Another common misconception is that the IRS audits those who file for bankruptcy after the debt is discharged. In reality, there is no such law targeting those filing for bankruptcy. Rather, audits are typically performed on those who do not fulfill their tax obligations.

Ultimately, there are many common misconceptions about bankruptcy. By learning the truth, individuals can get past their fears and obtain the fresh start they need.

Source: WRAL, "What are my chance of buying a home after bankruptcy? - Ruth," Steve Rhode, April 25, 2013

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