What words come to mind when you consider bankruptcy? Failure? Broke? Bottom? It’s over? Humiliation?
Perhaps in the past, but not so much these days. Although declaring bankruptcy is never a good idea, it might be your only option in some situations. We’re busting the top five bankruptcy misconceptions to provide you the truth so you can make an informed decision before filing for bankruptcy.
1. Myth: The majority of bankruptcy choices are the same.
Factual error. The three you may be familiar with—Chapters 7, 11, and 13—are significantly distinct from one another. Many people apply under Chapter 7, which typically enables them to eliminate the majority of their debt within a few months. Compared to Chapter 13, which requires people to utilize their disposable income to return a portion of their debt over a five-year period, Chapter 7 has a better success rate and is less expensive to file. The median income in your state determines whether or not you are eligible for a Chapter 7 or Chapter 13. The Chapter 11 bankruptcy, which involves a business’s financial restructuring and might take years, is another option. Consult a bankruptcy lawyer to determine which choice is best for you. The majority of consultations are free and can help you see which course of action is most likely to work for your circumstances.
2. Myth: If you file, all you own will be lost.
Fact: This may be the most widespread fallacy, and regrettably it discourages people from filing when doing so may be their best course of action in some cases. State bankruptcy laws differ, but all states safeguard particular assets, including your home, automobile, retirement account, furniture, and clothing. Although filing for bankruptcy is rarely the best course of action when faced with a mountain of debt, it might be in some cases. Bankruptcy should be your last resort, but depending on your financial position, it may still be the best choice. Before making a decision, investigate and weigh all of your options, including strict DIY budgeting, consumer credit counseling, and settlement negotiations.
3. Myth: You won’t ever be eligible for a loan again.
Truth: No. Although declaring bankruptcy will remain on your credit report for 10 years, this does not exclude you from ever being approved for a loan or being able to borrow money. Jumping back into the fray and working toward gradually restoring your credit is the greatest method to bounce back from bankruptcy. Start with a secured card and use it wisely. Long before that ten-year point, you will receive credit card offers in the mail. They will come from lenders who sell credit cards with extremely high interest rates. Defy the urge to indulge. A further piece of advice is that if you have a credit card with no balance when you file for bankruptcy, you don’t need to name it as a creditor because you owe it nothing, and you might be able to keep the card once you’ve done so. If you’re intending to buy a house or a car anyway, you might want to think about your options before you file because it will cost you significantly more to borrow money after you file. Having said that, avoid going over the credit limit on all your cards before declaring bankruptcy. Before you file for bankruptcy, bankruptcy judges and the trustee assigned to your case will investigate the purchases you made, and they may come to the conclusion that your attempt to file for bankruptcy is fraudulent.
4. If you declare bankruptcy under Chapter 7, all of your debts are discharged.
True: Keep dreaming! Child support, alimony, government-issued college loans, court-ordered litigation settlements, and debts acquired as a result of fraud are some forms of debts that cannot be forgiven. This is a significant problem for those who are in default on student loan debt, and it’s unquestionably something to think about before deciding to file.
Myth 5: If you’re married, you both have to file
Fact: While not always accurate, this is true a lot of the time. There is no need for both spouses to file if the debt is only in one of their names. In fact, they shouldn’t file together in that situation. The best advise is to speak with a bankruptcy attorney before making a decision; initial consultations are frequently time well spent and cost nothing. Both must file because debt is typically in both of their names.
Bonus Myth: Bankruptcy is only filed by “losers.”
The majority of filers did not engage in any unsafe or reckless behavior that caused their financial predicament. They file because fate handed them a blow that wrecked havoc on their finances, such as divorce, job loss, identity theft, or a catastrophic illness. Most people file for bankruptcy after months or even years of having trouble making ends meet and accumulating mounting debt. Although bankruptcy isn’t always the solution, for some people it can be the only one.
