The Myths of Bankruptcy

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Not everything is as it seems, and when it comes to bankruptcy, this can be doubly true. The popular perception of bankruptcy is colored by misconceptions and incorrect media depictions. By the time you start considering filing bankruptcy an option, you probably have a series of assumptions in place that will prevent you from filing when you need it, or make it a much more difficult process than it needs to be.

First and foremost, it is critical to consult with a local bankruptcy attorney, no matter what your understanding of the process is. They can guide you through some of the hairier aspects, as well as advise you on what particular chapter to file under (chapter 7 bankruptcy vs. chapter 11 bankruptcy vs. chapter 13 bankruptcy, etc.).

Before you get started, make sure to check out these common myths about bankruptcies and dispel them from your head immediately.

Myth: Bankruptcy represents Failure
Fact: This is possibly the most important thing to remember — bankruptcy is not your fault. The fact is that whatever mistakes you have made are only one part of a bigger picture that includes many problems, few of which had anything to do with your actions. Most people who file bankruptcy are not abusing the system, and are in fact acting responsibly, taking the measures to restructure their debt in a manageable way. Despite one’s best efforts, unexpected expenses, unforeseen circumstances, unprecedented job losses and an inhospitable job market can all lead to mounting, unmanageable debt. In fact, bankruptcies resulting from unpaid medical bills affected an estimated 2 million people in the U.S. during 2013. Bankruptcy is not a get out of jail free card, and it is not a “debt sentence,” so rest easy knowing that social stigmas surrounding bankruptcy won’t affect your future success unless you let them.

Myth: Bankruptcy means all of your possessions will be taken away
Fact: Most of the time, this is not the case. In fact, some types of bankruptcies specifically protect against the foreclosure of a debtor’s home and other assets. Bankruptcy law provides special exemptions that are designed to protect some of your things. Granted, if you have several thousands of dollars worth of assets that are easily liquidated, it is up to your bankruptcy trustee to decide how to go about using them to go toward your debt, but your personal belonging and necessaries, like a car to get to work, will be protected. These rules vary state to state, so make sure to consult with your local bankruptcy attorney beforehand.

Myth: Bankruptcy will ruin your credit forever
Fact: Quite to the contrary — sometimes, bankruptcy can be good for your credit because it shows that you took responsible action to restructure your loan burden. While a Chapter 7 bankruptcy does stay on your credit report for 10 years, but after a couple of years, it does not matter much. Within two years, most people can vastly improve their credit and take out loans for homes and cars. Make sure to talk future financial planning with your local bankruptcy attorney.

So, contrary to popular belief, the estimated 1,071,932 bankruptcy filings in the United States during 2013 actually helped a lot of people to restructure their debts, and lives, in a positive way!