Filing for bankruptcy is a serious decision. It can be a fresh start for your finances if you understand the process and know what the bankruptcy does for you. Some people are afraid to file for bankruptcy because they are afraid of what other people will think and how it will affect their property and credit. Learn more about these myths that might be keeping you from getting a bankruptcy.
Myth: If you file for bankruptcy, you are financially irresponsible.
Truth: Although some people who file for bankruptcy do abuse the system, there are really three main reasons people have serious financial issues:
- Loss of a job
- Serious illness
Myth: Bankruptcy will get rid of all of your debts.
Truth: Not all debt can be discharged through the bankruptcy process. Alimony, child support, taxes and student loans are obligations that typically cannot be removed. There are processes to allow student loans to be forgiven, but that is separate from bankruptcy.
Myth: Bankruptcy will permanently ruin your credit.
Truth: A bankruptcy does stay on your credit report for a long time, but it is common for people who file bankruptcy to get credit card offers within 6 to 12 months of filing. You can rebuild your credit through secured credit cards and small loans quite quickly when you make regular payments.
Myth: You will lose your home and car in the bankruptcy.
Truth: Maybe, maybe not. You are not automatically forced to liquidate these assets, but if you cannot make the payments, you may lose the property. Some assets are non-exempt. Although your property is part of the bankruptcy estate, that does not mean that the trustee will have you sell an asset.
Myth: You just fill out forms for a bankruptcy and start over.
Truth: Bankruptcy is a complicated process. You may have to attend credit counseling classes before filing for bankruptcy. It is much more than just making an application to the court to discharge your debts. You also will have court fees that need to be paid.
Chapter 7 or 13?
Chapter 7 bankruptcy is the one that discharges some debts. Chapter 13 is a bankruptcy that reduces and reorganizes debt. Both processes take time and should be taken very seriously. Bankruptcy is often made out to sound as if it is a cure-all. You cannot go into a bankruptcy and expect it to solve all of your problems. You do need to make lifestyle changes. Talking to an experienced and understanding bankruptcy attorney can help you make the right decision about which bankruptcy is right for your situation.