Many Americans carry deep debt for a long time, not realizing that bankruptcy can help them get a fresh start. While bankruptcy isn’t a panacea for all your financial woes, various types of bankruptcy exist to help honest debtors regain financial control of their lives. Hesitation to file bankruptcy often centers around misinformation about what will happen when you file.
If you're swimming in debt and hesitant to take the next step, don't let these common bankruptcy myths stop you from getting a fresh start.
You’re Financially Irresponsible
Many people hesitate to file bankruptcy because they believe employers and others will view them as financially irresponsible. You may have a preconceived notion that others will assume that you took out loans and other unsecured debt without the appropriate financial planning to repay.
While a percentage of individuals may fall into this category, most people who file for bankruptcy are honest debtors that experienced an unfortunate event or series of events that impacted their ability to repay their debts.
Filing bankruptcy is one of the most financially responsible actions you can take when you find yourself overwhelmed with debt that you're unable to pay back. If you continue to put off bankruptcy, you'll dig yourself into a deeper hole of debt you can't afford.
You'll Lose Everything
Under most types of bankruptcy, you will lose some assets in order to help repay creditors. However, you won't lose everything. Bankruptcy is not designed to leave you destitute. Filing for bankruptcy doesn't mean that you'll have to give up all of your possessions.
On the contrary, most people are able to keep the majority of their possessions when they file for bankruptcy. How much of your wealth you get to keep depends on the type of bankruptcy you file and your specific financial situation.
Individuals with few assets typically qualify for Chapter 7 bankruptcy. Chapter 7 allows you to keep possessions that are basic necessities, such as your car, as long as it's not worth over a certain amount. There is a limit to the amount of property you can exempt. A Chapter 13 bankruptcy can help you to keep your house and get your mortgage payments under control.
Unless you have a lot of equity, you'll likely keep all of your major possessions under a Chapter 7 bankruptcy. And chances are that you wouldn't file for bankruptcy if you possessed a lot of equity in the first place.
It Will Ruin Your Credit
One of the most pervasive myths about bankruptcy is that it will completely destroy your credit forever. What many people fail to realize is that poorly managed debt negatively impacts credit significantly.
While you may notice a decrease in your credit score after filing for bankruptcy, the impact is not as great as continuing to carry debt that you're unable to manage.
The decreased credit score you’ll experience following bankruptcy is temporary. With a fresh start, you'll likely be able to rebuild your credit quickly. Over the long term, bankruptcy will improve your credit by eliminating or balancing your debt.
Bankruptcy can bring some much-needed debt relief and help you get the fresh start you need to get your financial life back on track. However, you should remember that bankruptcy is a tool, not a cure-all. Certain debts can't be discharged, such as student loans, unless there's a court order. You also likely won't be able to discharge new debt that occurred within 90 days of filing for bankruptcy.
Keep these points in mind when considering your options. At Reynolds Law Firm, our team can help you get the fresh start you deserve.