Usually, when we think about bankruptcy, the first thing that comes to mind is someone standing in a barrel with all of their belongings being stolen, or losing all your money on Wheel of Fortune. Bankruptcy is a word that has become taboo throughout the years. Fortunately, bankruptcy is not as bad as everyone thinks. It can be considered a life saver for those who have found themselves pulled to thin by debt. Below I will discuss the major myths associated with bankruptcy.
- Filing Bankruptcy Labels you Financially Irresponsible
Many people who file for bankruptcy get themselves in trouble by taking out to many credit cards or spending money they do not have. But many times factors such as sudden unemployment, pay cuts, unexpected medical expenses, or death can cause many to suffer financial hardships. Filing for bankruptcy does not ultimately label you as financially irresponsible. It does, however, show that you are ready to take control of your finances and get them back on track in any way you can.
- You Will Lose Everything
Many think that filing for bankruptcy means you will lose your house, car, and everything you own. In reality, you are likely to keep your possessions. While the bankruptcy laws for each state vary, every state has exemptions that protect certain kinds of assets. Assets like your house, car, retirement fund, etc. are protected by these exemptions.
- Your Credit Will Suffer Long-Term
One thing that people always worry about when filing bankruptcy is their credit score. They think this is it my credit score will be ruined forever. A lot of times this is true: you can expect to have restricted access to credit and pay higher interest rates for seven to ten years that a bankruptcy remains on your credit report. There are programs out there that can repair you credit score, one of which we offer to all of our clients free of charge.
- Both Spouses Have to File if They are Married
One of the biggest misconceptions in bankruptcy is that if you are married, both you and your spouse have to file. In some cases this is true but a lot of times one spouse can file without the other. What people need to understand is that if a couple has co-debt between them then if one fails the other needs to file as well. If one spouse files for bankruptcy on debt that his/her spouse co-signed on creditors will just go after the spouse who is not filing.
- All Debt Will Be Discharged
Unfortunately, bankruptcy cannot relieve all of your debt. There are types of debt that you cannot place into bankruptcy. These debts are considered debt that you are personally responsible. These debts include federal student loans, child support, alimony, taxes, etc.
Over the years bankruptcy has garnered a bad reputation. With all the misconceptions and myths swirling around we can understand how this reputation came to be. Hopefully, this article has dispelled many of the myths associated with bankruptcy and gives you more of understanding.
Written by: Rebecca Kidd