Filing for bankruptcy is a process shrouded in myth and misunderstanding. If you’re experiencing financial struggles, debunk these bankruptcy myths to give you a better understanding of how the process works.
Myth: Bankruptcy is the “easy way out.”
Bankruptcy can be complex and comes with long-lasting consequences, which is why you should think of it as your last resort. After all, there are several alternatives to bankruptcy that you can pursue first. If methods such as debt management, consolidation, and settlement don’t pan out, then bankruptcy could be the best option for wiping the slate clean.
Just be aware that some types of debt are not dischargeable—meaning you must repay them even in bankruptcy. These include recent taxes, child and spousal support, fines for fraud, and student loans. Bankruptcy is designed to discharge debts from credit cards, medical bills, personal loans, and more.
Myth: You will lose all your possessions in bankruptcy.
On the contrary, under Chapter 13 bankruptcy, you keep all of your assets, though their value does figure into your repayment plan. Even the vast majority of Chapter 7 filings are no-asset cases, meaning the debtor surrenders no possessions. This is possible thanks to exemptions, which allow you to protect your basic assets from liquidation. Creditors often don’t want whatever is left behind either because they aren’t valuable enough or are over-encumbered by liens.
Myth: Filing for bankruptcy is akin to admitting defeat.
Whatever your reason for pursuing bankruptcy, think of it as a tool to help you regain control of your finances. It shouldn’t be your first option for getting rid of debt, but there’s no need to beat yourself up if you end up taking this route. The fact is many bankruptcies are the result of stagnant wages and rising living costs rather than poor financial management.
Myth: Bankruptcy will ruin your credit score.
While you should be prepared for the consequences—which include a lower credit score, limited access to loans, and higher interest rates for seven to 10 years—rest assured that your financial situation can bounce back. After all, you will no longer be floundering in debt and can put your income toward your daily living expenses instead of paying off loans and credit cards. Plus, your credit score will begin recovering just six to eight months after your bankruptcy is finalized.
Myth: You can only file for bankruptcy once.
It may be true that bankruptcy laws tightened in 2005, but debtors can still file for bankruptcy every eight years under Chapter 7 and every two years under Chapter 13. If you are discharged through Chapter 7, you must wait six years to file under Chapter 13, and if you are discharged through Chapter 13, you must wait four years to file under Chapter 7.
Have you heard other misconceptions about bankruptcy? Clear the air by calling Cutler & Associates at (773) 360-5802. We’ll discuss any questions and concerns you have at your free bankruptcy evaluation before you take the next step.