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The 6 Most Pervasive Myths About Bankruptcy


One of the hardest aspects of bankruptcy may not be the filing process. What many people struggle with the most is overcoming harmful stereotypes and misinformation surrounding this form of debt relief. At the Law Office of Seni Popat, we believe knowledge is one of the most powerful resources a person can have, especially when facing extreme financial adversity.

Here are a few of the most common bankruptcy myths—and why they aren’t true.

1. Your credit will never recover.

Many people who file bankruptcy can almost immediately qualify for secured credit or loans, albeit with high interest rates. While bankruptcy will remain on your credit report for either 7 or 15 years (for Chapter 13 and Chapter 7, respectively), the mark’s impact on your credit will diminish rapidly. In other words, as time passes after your filing, the bankruptcy will have less of an effect on your ability to open new credit cards or qualify for loans with reasonable interest rates.

Furthermore, if you are considering filing bankruptcy, your credit may already be suffering. Bankruptcy can allow debtors to lower or eliminate unsecured debt, and their scores will increase over time because of their lowered credit use.

2. You can spend recklessly before you file Chapter 7 because it will discharge all credit card debt.

Many people who plan to file bankruptcy will go on reckless spending sprees with their credit cards, believing Chapter 7 will discharge all debt. However, Bankruptcy Courts closely analyze your finances when determining your eligibility, and they typically consider spending sprees of this nature as fraud. Any debt incurred via fraud is not dischargeable.

3. After bankruptcy, all your debt will be gone.

Whether your debt is discharged depends on a variety of factors, including:

  • Your income
  • Your amount of debt
  • Your type of debt
  • The type of bankruptcy you file

In Chapter 7 bankruptcy, the court will generally discharge most types of unsecured debt (e.g. credit card debt, medical bills, personal loans, etc.). Child support and alimony cannot be discharged, and courts rarely discharge federal student loans and tax debt.

In Chapter 13, you will repay your creditors in 3-5 years using your disposable income. Any debt that is not paid off by the end of this plan will be discharged.

4. If you file bankruptcy, you are financially irresponsible.

Natural disasters, economic downturns, illnesses, and job loss are just a few common events that cause people to file bankruptcy. Even if your mistakes or lack of planning led you to bankruptcy, we are all human, and many of today’s most affluent figures filed bankruptcy before achieving success.

Due to COVID-19, the number of bankruptcies in the U.S. will likely skyrocket. The economy has already experienced a substantial downturn, and countless individuals and businesses will use bankruptcy to financially survive the pandemic.

5. You’ll lose everything in bankruptcy (or you’ll lose nothing).

What you will have when you finish your bankruptcy process depends on your unique circumstances. Was most of your debt non-dischargeable? Did you have very few assets to begin with? Did you file bankruptcy even though you had multiple vehicles and vacation homes?

In Chapter 7, courts allow filers to claim either state or federal exemptions (unless you live in a state that prohibits you from claiming federal exemptions). Exemptions are assets that the Chapter 7 trustee cannot liquidate to repay your creditors. What you keep will depend on exemption laws, the value of your assets, and any existing liens.

In Chapter 13, you can generally keep your assets because you will be repaying your creditors. This is why some people choose Chapter 13, even if they qualify for Chapter 7.

6. Hardly anyone qualifies for bankruptcy.

Between 2005 and 2017, approximately 12.8 million consumers filed bankruptcy in the United States. With qualified support, bankruptcy can be both viable and effective. While not everyone qualifies for every type of bankruptcy, you can very likely find the right type of bankruptcy for your situation.

Let the Law Office of Seni Popat Address Your Concerns About Bankruptcy

If you are still unsure about whether bankruptcy could solve your financial problems, our attorney is fully prepared to answer your questions and provide an honest assessment of your situation. We can help you prepare, guide you through the filing process, and give you the resources and information you need to recover as quickly as possible.

Due to COVID-19, we are conducting remote consultations via phone, email, and videoconference. We understand the level of stress the pandemic may be causing you and your loved ones, and we are ready to help you handle all ensuing financial challenges. Call (718) 340-3385 or contact us online to request your virtual consultation today.