Misconceptions that bankruptcy and foreclosure are interminable sentences of doom are very common, but are outdated and not necessarily true. Here are some of the myths I’ve seen most:
- One’s quality of life will suffer immensely. A year after walking away from our home due to Tony’s job loss, we’re living just as comfortably as we did in the past, even on half our previous income. This is specifically because we gave up our home and declared bankruptcy. It isn’t the answer for everyone, but for us, it was the only choice to make.
- Renters have to live in sketchy apartments post-foreclosure. We are renting a lovely 2,000 SF home, in a safe and pretty neighborhood, that is less than 10 years old. Honestly it’s nicer and newer than the house we owned, and the rent is less than half our previous mortgage payment.
- You’ll never be able to rent with a foreclosure, bankruptcy, and terrible credit. Bankruptcy and foreclosure are so common now that many landlords are more forgiving about these than they were five or even three years ago. Most only want to know that you’ve never been evicted. Ours didn’t even check our credit.
- You won’t be able to fund your kids’ college. My kid is going to a good state university this year and we are paying for it together — which has been my philosophy all along. We will consider student loans only as a last resort.
- You wont be able to get an auto loan, except maybe at a buy-here-pay-here lot. Lenders know that once you’ve declared bankruptcy, you can’t do it again for 7 years. So even if you’re chronically in bankruptcy, their risk is pretty low. My credit now is not as good as it was before, but it’s not horrible and it’s steadily improving. Three months after bankruptcy discharge (including a voluntary car repo), I got a loan for a 2-year-old low-mileage Acura at a reputable dealer. No buy-here-pay-here required. The interest rate isn’t perfect, but it’s reasonable.
- You’ll never get another job because a lot of places do credit reports and look down on people with bankruptcies, foreclosures, etc. I recently got a new, awesome job at Turner Broadcasting, a major media outlet. They did an extensive background check, including my credit, but didn’t care at all about the bankruptcy or foreclosure. Again, these things are so common now that most of the time they are overlooked. They just want to know that you’re not a criminal.
- Auto insurance companies charge the highest rates to people with terrible credit. This may be part of the equation, but it also depends on driving record, where you live, and many other factors. My car insurance rate hasn’t changed in three years.
I don’t know why these myths continue after the worst recession this country has seen since the 1930s, and when unemployment rates remain high three years after it all started. Unfortunately I think a lot of people want to see utter failure as the result of foreclosure and bankruptcy, which is a peculiar flavor of schadenfreude that I don’t understand.