Bankruptcy is a complicated legal procedure. For most people, bankruptcy is completely new territory, and people are facing it without a roadmap. It can feel overwhelming. When it comes to questions like, “What’s going to happen?” or “Is this the right choice for ME?”, the answers and information often seem confusing and contradictory. Don’t let a lack of clarity hinder you from making the right financial decision for your future. Here’s what you should know.
Myth #1: You’ll lose everything
There’s a common misconception that to alleviate debt through bankruptcy, you have to sacrifice all of your possessions and financial assets: your home, your car, your retirement savings. In many bankruptcy filings, however, you’re likely able to keep most of your possessions. While in some cases there are repossessions, every case is unique, and the value of your assets is taken into account before any decisions are made.
The majority of Chapter 7 bankruptcy cases are no-asset filings–the debtor doesn’t have to give up their possessions. These exemptions allow for debtors to keep basic assets that are necessary for their day to day. This gives them the ability to regain some financial stability in order to move forward and be able to continue contributing economically. Other non-exempt assets are not always desirable to creditors, as the work to collect and auction them isn’t worth the eventual payout. Possession exemptions vary from state to state, so working with an attorney is the best way to understand what your specific exemptions will be.
Chapter 13 bankruptcies allow you to keep all your assets, as Chapter 13 alleviates debt through a repayment plan. Your assets, however, will be factored into the decision about repayment.
Myth #2: All of your debts will be relieved
Both Chapter 7 and 13 will provide relief from most forms of debts, but there are exceptions. In most cases, bankruptcy doesn’t let you discharge debts that you are personally responsible for. This includes recent taxes, child or family support, most student loan debt, and any debts that are a result of financial fraud. Most bankruptcy will discharge debts that include personal loans, credit cards, and medical debt. An attorney can help you fully understand what your debt relief will include.
Myth #3: You’ll never be able to take out a loan to own anything again
Bankruptcy doesn’t discount you from a life of owning things or being able to get a loan or credit. Bankruptcy can actually work in your favor–by relieving your debts, you can lower your overall credit utilization rate, which will ultimately positively affect your credit score. While you may pay higher interest rates for some time after a bankruptcy filing, you aren’t prohibited from ever being able to take out a loan or get a credit card ever again.
Myth #4: Everyone will know you filed for bankruptcy
Bankruptcy might be public record, but it’s rare that anyone outside of your creditors and anyone you tell will know about your bankruptcy. Banks will see the filing on your credit report should you apply for future loans in the next ten years, but people like your family or employer don’t have to know unless you tell them. There are a huge number of bankruptcy cases on file, and there’s a low likelihood that anyone would stumble upon your filing.
Myth #5: If you’re married, both you and your spouse have to file for bankruptcy
In many cases, because assets like loans and credit cards are often linked and belong to both people in a marriage, it makes sense for both parties to file for bankruptcy. It’s not a requirement, however. There are certainly cases where there is no reason for both spouses to file. If only one spouse has accumulated the debt and it remains only in their name, the filing only has to be for that individual and thus will only affect their credit score.
Myth #6: Filing for bankruptcy is too expensive
While there is a cost to a bankruptcy filing, it’s likely far more expensive to not file and continue to rack up interest charges, late fees, and the negative impact to your credit report. You can call our office to get more information about how much it will cost to handle your bankruptcy. Our fees cover the gathering of information, filing paperwork, and ultimately your peace of mind.
Myth #7: Bankruptcy is a personal failure
Good, responsible people have to file for bankruptcy for any number of reasons–from medical debt to other financial emergencies. Considering bankruptcy is an option that can allow you to move more freely through life after an unexpected event or life crisis.
There are a lot of things that go into the decision to file for bankruptcy, and you can enlist expert help to make the right choice. Call us today for a free consultation to discuss your options and how you can get back on track to financial certainty today.