Setting the Record Straight: 5 Common Myths and Misconceptions About Bankruptcy

If you find yourself facing the prospect of bankruptcy, chances are good you have many overwhelming questions and worries. Even if you have tried to carefully manage your personal finances, sometimes bad things happen, or life throws an unexpected curve ball. The good news is that filing for bankruptcy can be far less daunting when you know what to expect and are not led astray by falsehoods and myths. Here are some of the most common myths about bankruptcy to watch out for.

1. All Your Debts Will Be Eliminated

Bankruptcy is a sound option for those facing severe debt. Although it may not completely eliminate all your obligations to creditors, it will safeguard you against wage garnishment, lawsuits, foreclosure, and other forms of debt collection. Bankruptcy often does wipe out most forms of unsecured debt such as credit card debt, overdue utility payments, and medical bills. However, it normally does not address student debt or secured debt. In certain cases, it may be possible to erase secured debts such as a car loan, but you will have to relinquish the purchased property.

2. You Will Lose All Your Possessions

Most people who declare bankruptcy are able retain ownership of essential assets. Typically, individuals undergoing bankruptcy proceedings choose which items they would like to keep and which they would prefer to let go. Furthermore, under chapter 7 bankruptcy laws, exempt property cannot be liquidated. Exemption qualifications vary by state and situation, so it is crucial to be aware of what exemptions apply to your personal case. If you are considering bankruptcy but are worried about losing important possessions, contact a Bankruptcy attorney in Flint, MI for assistance. A skilled attorney will work side-by-side with you throughout the entire process and fight to ensure that you do not have to say goodbye to any indispensable belongings.

3. You Will Never Get Another Loan

It is not uncommon to worry that a bankruptcy will act as a huge scarlet letter, warning lenders to stay away from you forever. Fortunately, the reality is not nearly so bleak. It is entirely possible to obtain loans after declaring bankruptcy. Once the bankruptcy is discharged, it is never too early to begin rebuilding credit. Obtaining a secured credit card is a great way to start the process. You could also ask a friend or family member to co-sign on a loan or investigate small loan options offered by your local bank. Making timely loan payments will signal to lenders that you are back on the right path and renew their faith in you while gradually boosting your credit score. Moreover, do not forget that a bankruptcy only stays on your credit report for 10 years before it is erased fully, giving you a completely fresh start.

4. You Have Too Much Debt to File

While it is true that there is an upper limit on the debt you can have to declare chapter 13 bankruptcy, there is absolutely no maximum to file for chapter 7 bankruptcy. In fact, there are no upper or lower debt restrictions when it comes to a chapter 7 bankruptcy. Regardless of where you are at financially, you should never worry about having too much or too little debt to consider bankruptcy. Each situation is unique to the individual and his or her circumstances and should be addressed as such.

5. You Can Only File Once

Many people are wrongfully under the impression that filing for bankruptcy is a one-time option. The truth is that you can declare bankruptcy as many times as necessary. Although, it is important to note that a certain number of years must pass before a bankruptcy court will agree to grant you another full discharge of debts. The exact number of years you must wait will depend upon the date of your most recent bankruptcy and what type of bankruptcy it was. Nevertheless, most of the time, it will not be more than a few years. Since life is constantly changing, it may be necessary to declare bankruptcy more than once. Remember that it is nothing to be ashamed of, and bankruptcy attorneys are always available to help.

Whether or not to file for bankruptcy is highly-dependent on each person’s state of affairs. If you are unable to pay back your creditors and are coping with the continuous stress of wage garnishments, lawsuits, repossessions, or foreclosure, bankruptcy may be in your best interest. No one should be needlessly afraid of bankruptcy due to erroneous myths. It exists as an important safety net that anyone may need at one time or another.

Roberto Azarcon

Roberto has worked in the personal finance field for 20 years, particularly in the areas of financial planning.

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