13 Common Bankruptcy Myths and Facts
Bankruptcy may not ruin your life, but it can be a complicated process. Unfortunately, there are many myths about bankruptcy that cause more confusion for people. Today, we’re going to address and debunk 13 common myths as well as share the reality of bankruptcy.
Learning the truth about bankruptcies can help you decide if filing for bankruptcy is right for you. If you want to learn more about if bankruptcy can help you, we offer free 20 minute strategy sessions to learn about your financial situation and help you better understand your options to get out of debt.
- You’ll Lose Everything In Bankruptcy
If you file for bankruptcy, you can rest assured knowing that you won’t lose everything you own. In Chapter 13 and Chapter 7 cases, some of your property may be sold to pay off debts but there are exceptions. Most property in a bankruptcy filing is exempt and filers rarely lose anything at all. Assets considered exempt vary from state to state, but usually your house, vehicles, and clothes are safe.
- You’ll Lose Nothing In Bankruptcy
Conversely, there’s the myth that you won’t lose anything when you file for bankruptcy. Some people make the mistake of believing that an attorney can shield all of their assets. In reality, you’ll lose a fair amount of things in a Chapter 7 bankruptcy and a Chapter 13 bankruptcy requires you to complete a payment plan that may require selling off assets.
Property that isn’t protected by an exemption is at risk as well as unnecessary luxury goods that are completely paid off. These can be sold with the proceeds applied to the debt. However, working with an attorney can help you better protect what is most important to you when filing for bankruptcy.
- Bankruptcy Permanently Hurts Your Credit Score
Bankruptcy doesn’t stay with you always or remain on your credit history forever. If you’re wondering does bankruptcy stay on your record forever, you’ll be happy to know that it does go away on your credit report. You can expect limited access to credit for the 7 to 10 years that a bankruptcy remains on your report, but the effects are not permanent. In fact, you may receive credit card offers within weeks of your debt discharge. Ultimately, your credit will be far from doomed should you decide to file for bankruptcy.
- Married Couples Both Have To File
Assuming that you and your spouse both need to file for bankruptcy assumes you both are responsible for the debt. It’s not unusual for one spouse to have a significant amount of debt solely in their name. In these cases it’s best to file for bankruptcy alone.
However, if debt is shared between spouses then both should file. If both spouses are liable for debt and only one spouse files, then creditors can demand payment in full from the spouse that didn’t file bankruptcy.
- Bankruptcy Discharges All Debt
While bankruptcy can assist you with clearing some debts, it won’t give you a completely clean slate. Chapter 7 bankruptcy may discharge most unsecured debts such as personal loans, utility bills, credit card charges, and medical bills. Chapter 7 can even relieve you of secured debts under certain circumstances, but not all debt can be cleared in bankruptcy. For instance, child support, spousal support, and student loan debts cannot be discharged in bankruptcy along with most tax debts.
- You Can Only File Bankruptcy Once
There’s always the chance you may find yourself in a financial rut more than once in your lifetime. Luckily, there’s no limit on how many times you can file for bankruptcy should you need to.
Nonetheless, just because you can file for bankruptcy more than once, doesn’t mean that you should. Multiple bankruptcy filings don’t look good and can harm your credit rating. We can make recommendations on whether filing for an additional bankruptcy is worth it in a free twenty minute strategy session for new clients.
- It’s Hard To File For Bankruptcy
In many cases people file for bankruptcy completely unaware that there are multiple kinds of bankruptcy and alternatives available to them that may be a better fit for their situation. It can be best to consult with an attorney first so you can fully understand your options. While it may be hard to file for bankruptcy on your own because you’re unfamiliar with the process and paperwork involved, we make the process easy for our clients by providing personalized guidance throughout the process.
- Bankruptcy Will Ruin Your Family
Bankruptcy may offer a solution to some problems, especially those related to financial troubles. In some cases, you can actually put a stop to the family problems you’re experiencing by filing for bankruptcy and getting a fresh, financial start. Although filing for bankruptcy can be a very difficult decision, the absence of a financial burden may prove to be helpful for you and your family.
- Everyone Will Know That You Filed Bankruptcy
Unless you’re a prominent figure or a major corporation and the media picks up on the filing, the chances are very good that no one will know that you filed bankruptcy besides your creditors and anyone you decide to tell. The number of filings every year is so massive that unless someone is specifically trying to track down information on you, it’s very unlikely that anyone will know that you filed bankruptcy.
- If You Recklessly Spend Money Right Before Bankruptcy You Won’t Have To Pay That Back
Courts have decided that racking up charges prior to filing for bankruptcy is considered fraud and the debt that is acquired as a result of fraud will not be discharged. More importantly, once the Court appointed Trustee detects bad faith by the bankruptcy filer(s) during or before bankruptcy proceedings, the entire bankruptcy case could be subject to dismissal.
- Bankruptcy Filers Are Financially Irresponsible
It’s easy to wave off bankruptcy filers as reckless spenders who don’t understand how to manage their finances, but that’s actually not always the case. The three major causes of bankruptcy are divorce, severe illness, and job loss. So while people may avoid bankruptcy because they see it as an admission of personal failure, remember that bankruptcy is a financial remedy that society has decided is acceptable by creating bankruptcy laws. Bankruptcy laws exist to give people a way to restart their lives.
- Paying Off Your Debts Is A Better Option Than Bankruptcy
Filing for bankruptcy is one of the most serious financial decisions that you can make, but that doesn’t necessarily mean it’s a bad idea. In fact, filing for bankruptcy might be the best option for you.
There will be times that you can’t pay off the debts you owe because there’s too much to handle. While it could take you years to pay off that debt, you may be able to eliminate them in just a few months with a bankruptcy case. The type of bankruptcy you file can help you be debt free in as little as 100 days from filing or within 3 to 5 years.
- You’ll Never Be Able To Own Property
Most people assume that they won’t be able to get credit or loans after filing for bankruptcy. But the truth is, you could be extended credit right after the discharge of your bankruptcy.
Many banks offer credit on a secured basis to individuals that may be considered a higher risk. It’s important to demonstrate your financial stability after bankruptcy. If you can prove that you have made consistent payments on a small line of credit or loan, you will be more likely to gain higher lines of credit quicker.
Ready to Learn About Bankruptcy Options?
Now that you know these bankruptcy facts and myths, you’re ready to explore your options with a bankruptcy attorney and put yourself in a position to file successfully. Talking with a bankruptcy attorney can help you better understand what may be best in your unique situation and explain how the bankruptcy process works.
Contact us today for a free 20 minute strategy session to learn more about how we can help you.