Bankruptcy can be a helpful tool to provide relief for individuals and businesses who are in severe debt. It allows them to either eliminate their debts or create a repayment plan through bankruptcy court. However, there are lots of misconceptions surrounding bankruptcy that individuals should be aware of. In this blog, we will debunk some of the common myths about bankruptcy to give a better understanding of the process and how it can help those in debt.
Misconception 1: Bankruptcy Ruins Your Credit Forever
The first and one of the most common myths about bankruptcy is that it permanently ruins your credit. Yes, bankruptcy hurts your credit score, but it is not irreversible. Depending on the type of bankruptcy you file, it will typically stay on your credit report for around 7 years. Commonly, people see their credit scores start to improve a year or two after filing. As long as you are financially stable and responsible, you should be able to rebuild your credit gradually.
Misconception 2: You Lose Everything When You File for Bankruptcy
Another myth about bankruptcy is that you lose all your possessions when you file for bankruptcy. Chapter 7 bankruptcy is typically the type of bankruptcy where you sell your assets to repay creditors, but there are exemptions for what can be sold. Exempt assets include your car, home, and personal belongings such as clothing and household items. The goal of bankruptcy isn’t to leave you with nothing, it is meant to relieve the burden of debt by selling non-exempt assets.
Misconception 3: Filing for Bankruptcy Means You’re Financially Irresponsible
Many people think that filing for bankruptcy means you’re financially irresponsible, but in reality, life just happens sometimes and it can be uncontrollable. Some common reasons for filing for bankruptcy are medical bills due to medical emergencies, job loss, divorce, or even natural disasters. Bankruptcy is not failing, it is a fresh start. It allows you to reorganize or discharge debts and offer a path forward.
Misconception 4: Bankruptcy Clears All Debts
Another misconception about bankruptcy is that it clears all of your debts. This is false. Bankruptcy has the power to provide significant financial relief, but there are types of debts that cannot be cleared. Some of the debts that can be cleared include credit card debt, medical bills, and personal loans. Debts that are not able to be cleared are student loans, child support, and tax debts. It is important for individuals to be aware of the different debts that bankruptcy can clear and cannot to determine whether it can help you with your specific situation.
Misconception 5: Married Couples Must File Together
The last myth commonly associated with bankruptcy is that married couples need to file together, but this is not true. Depending on the circumstances, spouses can choose to file individually or jointly depending on their financial situation. A spouse may choose to file individually if that specific spouse is the one who is responsible for the debt or wants to protect the other’s credit. If both spouses have a large amount of debt, they may choose to file jointly. This can simplify the process for shared debt and avoid dealing with two separate cases.
Separate Fact From Fiction: Understand Your Bankruptcy Options
It is important for individuals who are thinking about filing for bankruptcy to separate the facts from fiction about the process. Being educated about bankruptcy will help individuals make more informed and educated decisions about their financial situation.
If you’re exploring bankruptcy options, consulting with a qualified attorney can guide you in navigating this complex landscape and finding the best path forward for your financial future. Contact Duncan & Brow, Attorneys at Law, LLLP, today to discuss your situation and develop a plan that works for you.
