You may have misconceptions about bankruptcy due to common myths. Unfortunately, popular knowledge frequently gets many things about bankruptcy wrong. Familiarizing yourself with some of the most widespread myths about bankruptcy can help you make informed decisions when you consider bankruptcy to resolve financial troubles.
Myth #1: Filing for Bankruptcy Means You Lose Everything
Some people believe that filing for personal bankruptcy will require you to sell all your property. However, bankruptcy laws allow most filers to keep some essential assets, such as a portion of your home’s equity, retirement accounts, personal items, business equipment, and a household vehicle. Furthermore, the type of bankruptcy can determine which property you can keep. Whereas Chapter 7 bankruptcy will require you to sell non-exempt assets, Chapter 13 allows you to keep all your assets, as you can create a plan to repay your creditors using disposable income.
Myth #2: Bankruptcy Permanently Ruins Your Credit
You might worry that filing for bankruptcy will permanently remain on your record to ruin your credit score for the rest of your life. However, a bankruptcy filing only stays on your credit report for up to 10 years. Furthermore, the credit bureaus give a bankruptcy filing less of an impact on your credit score as time passes. Although a bankruptcy filing can cause a significant drop in your credit score, most people begin to rebuild their scores soon after filing as they pay off debts and develop a history of making payments. Some people can also see an improvement in their credit score after filing for bankruptcy and paying off debts, depending on the types of debt and balances they had before bankruptcy.
Myth #3: Only Irresponsible People File for Bankruptcy
Some people may avoid filing for bankruptcy due to a perceived stigma that only those who made irresponsible financial decisions need bankruptcy. However, people may experience financial trouble for reasons outside of their control or unrelated to overspending, such as job loss, medical emergencies, or divorce. You should consider bankruptcy a legal tool to provide people with unmanageable financial troubles a fresh start, rather than a sign of a moral or personal failure.
Myth #4: Bankruptcy Erases All Debt
Some people think that bankruptcy eliminates all your debt. However, bankruptcy laws exclude certain kinds of debts from discharge, such as student loans, unpaid taxes, child support, alimony, and some types of personal injury judgments. Furthermore, the type of bankruptcy can determine which debts will receive a discharge. While a Chapter 7 bankruptcy can provide a discharge of eligible debts after liquidating non-exempt assets, Chapter 13 bankruptcies focus on repaying debts over time through disposable income. As a result, a person who files for Chapter 13 bankruptcy may discharge less of their debt balance.
Myth #5: You Don’t Need a Lawyer to File for Bankruptcy
Although you can file bankruptcy without an attorney, the complexities of bankruptcy laws and court forms can make it easy to commit errors that can jeopardize your right to bankruptcy relief. A bankruptcy attorney can help with various aspects of your case, such as helping you choose a suitable type of bankruptcy, protecting exempt property, and ensuring the accuracy and completeness of your paperwork.
Contact a Bankruptcy Attorney Today
Many people steer clear of bankruptcy due to popular myths that make it seem like a less-than-ideal solution for financial difficulties. However, bankruptcy can provide the best outcome for some people struggling with debt. Contact Gina H. McDonald & Associates, LLC, today for a free, confidential consultation with a bankruptcy lawyer to learn more about common misconceptions that people have about bankruptcy and discuss whether filing for bankruptcy can help you resolve your debt problems.
