Bankruptcy is surrounded by misconceptions and myths that can often deter individuals from considering it as a viable option for dealing with insurmountable debt. Here are the top seven bankruptcy myths and the truths behind them:
- Myth: You Will Lose Everything You Own
- Truth: Not all bankruptcy filings result in losing your possessions. There are exemptions in both Chapter 7 and Chapter 13 bankruptcies that protect certain assets. In Chapter 7, many filers keep most of their possessions due to these exemptions. Chapter 13 doesn’t typically involve asset liquidation since it’s a reorganization of debt.
- Myth: Bankruptcy Ruins Your Credit Forever
- Truth: While bankruptcy does have a significant negative impact on your credit score initially and remains on your credit report for 7 to 10 years, it’s not a permanent mark. Many individuals start rebuilding their credit soon after filing and can achieve good credit scores within a few years by adopting responsible financial habits.
- Myth: You Can’t Get Credit After Bankruptcy
- Truth: It’s possible to obtain credit after bankruptcy, but it may come with higher interest rates and less favorable terms initially. Many people receive credit card offers soon after bankruptcy but should proceed with caution to avoid falling back into debt.
- Myth: All Debts Are Wiped Out in Bankruptcy
- Truth: Not all debts can be discharged in bankruptcy. Non-dischargeable debts include most student loans, child support, alimony, certain taxes, and debts incurred through fraud.
- Myth: Filing for Bankruptcy Means You’re a Failure
- Truth: Bankruptcy is a legal tool designed to provide individuals and businesses a fresh start. Many people file due to circumstances beyond their control, such as medical emergencies, divorce, or sudden unemployment.
- Myth: Only Irresponsible People File for Bankruptcy
- Truth: This is a common misconception. Many responsible individuals face financial hardship due to unforeseen events. Bankruptcy is a legal mechanism to help people recover from financial setbacks, not a judgment of their character or responsibility.
- Myth: You Can Only File for Bankruptcy Once
- Truth: While there are time limits between discharges, you can file for bankruptcy more than once. For Chapter 7, you must wait eight years from the previous Chapter 7 filing date to file again. For Chapter 13, you typically need to wait two to six years, depending on your previous filing type and the new chapter you’re considering.
Understanding the realities of bankruptcy can help dispel fears and misconceptions, allowing individuals to make informed decisions about their financial futures. If you’re considering bankruptcy, it’s crucial to consult with a bankruptcy attorney to get accurate information and guidance tailored to your specific situation.
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