Bankruptcy is often shrouded in myth and mystery, but it doesn’t have to be. For many people, bankruptcy is the solution they need to find debt relief. Keep reading for some common myths surrounding bankruptcy.
Myth #1: You Lose Everything if You File for Bankruptcy
One of the most common (and terrifying) myths surrounding bankruptcy is that you’ll lose everything you own. This isn’t true by any means, and you might be surprised at the number of items you get to keep.
During the bankruptcy process, your property is split into two groups: exempt and nonexempt property. Nonexempt property is usually sold or used as collateral for your debt, while the exempt property remains in your ownership. Exempt items can include anything from your car or house to your flatscreen television. The most important thing to creditors is value – what can’t be bought/sold doesn’t have value.
Myth #2: Bankruptcy Destroys Your Credit
A good credit score allows you to qualify for loans, buy a car, or purchase a house, and a common misconception is that bankruptcy destroys your credit score. Thankfully, this isn’t true. While bankruptcy does damage your credit, you will still be able to recover over time.
Credit recovery is different for everyone, and improving your score could take months or years, depending on your situation. However, it’s important to understand that bad credit is still credit, and bankruptcy doesn’t damage your credit score irreparably.
There are advisors, attorneys, and accountants who can help you begin to improve your credit score. Never take financial advice from someone who doesn’t have a license. Fiduciaries and bankruptcy attorneys are highly qualified and equipped to help you through the credit recovery process or provide trustworthy resources.
Myth #3: Anyone Who Files for Bankruptcy Is Financially Irresponsible
Unfortunately, the stigma around bankruptcy prevents many people from getting the debt relief they desperately need. There is a harmful assumption that people who need financial help through bankruptcy are irresponsible or careless with their money. This is simply not true.
Debt comes in many shapes and forms and can develop over time or result from recent hardships. Credit cards, medical bills, and loan payments can pile up into an unmanageable amount that would take a herculean effort to handle. Most bankruptcy filers fall on hard times through no fault of their own. They may have an accident that prevents them from working and paying the medical bills. A family member may die, leaving their debts behind.
Regardless of what others around you may think, bankruptcy does not make you irresponsible. It’s a difficult decision to make, but you can build a solid financial future in the end. Bankruptcy is only a means to an end – it doesn’t define you.
Myth #4: Bankruptcy Discharges All Debts
While bankruptcy can help you get a fresh start, not all debts are dischargeable. Most unsecured debts, those without collateral, are dischargeable, but student loans and tax debts probably won’t qualify for discharge.
Any debt arising from child or spousal support is not dischargeable either. This is because most states view child support and alimony payments as “responsibilities” instead of debts. In other words, making support payments is something you agree to be held responsible for by the court.
Myth #5: Bankruptcy Is Hard
It might surprise you how easy bankruptcy can be with proper guidance. One of the biggest hurdles in the bankruptcy process is determining which chapter of bankruptcy you qualify for. There are many options for bankruptcy, and some options may be better for you than others.
For example, individuals with an immense amount of debt may not qualify for reorganization but qualify for liquidation under Chapter 7. On the other hand, people with a moderate amount of debt may be able to pay it off through a reorganization plan as a part of Chapter 13.
Once you know what type of bankruptcy you qualify for, you simply need to provide the necessary documents and information to the court. Unless something unusual happens, most bankruptcy cases follow a formula that is easy to follow if you have legal aid.
A word of caution: NEVER attempt to file for bankruptcy without legal representation. An attorney can guide you through the process and help you protect valuable assets from bankruptcy court.
Find Out if Bankruptcy Is Right for You
Bankruptcy is often thought to be a mysterious, convoluted, and unknowable process that results in certain financial death. In reality, bankruptcy is a viable debt relief solution that can give you the help you need to build a better financial future.
For more information about bankruptcy, don’t hesitate to contact our licensed bankruptcy attorney at the Law Office of Seni Popat, P.C.