Bankruptcy Myths Debunked
Nov. 22, 2023
Bankruptcy can be confusing, with many myths making it even more intimidating. In this article, we're here to debunk some of the most common bankruptcy myths in a straightforward, friendly manner so you can make informed decisions if you ever find yourself in financial trouble.
Myth 1: "I'll Lose My Car and Home"
The first big myth is that if you file for bankruptcy, you'll lose your car and home. With proper planning, this is almost never true. Bankruptcy laws have provisions to help you keep these essential assets. Most states allow you to keep your primary residence and car, as long as their equity doesn't exceed certain limits. Even if you’re assets exceed the limits, in a Chapter 13 bankruptcy you can set up a repayment plan to catch up on missed mortgage or car payments and safeguard these assets.
Myth 2: "Only People Who Live Beyond Their Means File for Bankruptcy"
Some think that only those who have been extravagant and irresponsible with their money end up in bankruptcy. The reality is that financial difficulties can arise due to various reasons like job loss, medical bills, divorce, or unexpected emergencies. Responsible folks can also face financial challenges, and bankruptcy is a way to get their finances back on track.
Myth 3: "I'm a Failure for Filing Bankruptcy"
Filing for bankruptcy doesn't mean you're a failure. It's a legal process meant to help people struggling with debt. It shows that you're taking responsibility for your own financial situation and are committed to getting back on your feet. It's a smart move when other ways of managing your debt won't work.
Myth 4: "My Credit Score Will Be Terrible for 7-10 Years"
Yes, bankruptcy can affect your credit score, but the idea that it will be in the dumps for 7-10 years is exaggerated. The impact on your credit score and how long it stays there depends on the type of bankruptcy you file, and the steps you take after filing bankruptcy. Chapter 7 bankruptcy can stay on your credit report for 10 years, and Chapter 13 for 7 years. But here's the good news: you can start rebuilding your credit soon after filing, and with responsible money management, you can improve your credit within a relatively short time.
Myth 5: "I Can't Get a Credit Card or Car After Filing"
It's also not true that you won't be able to get a credit card or a car loan after bankruptcy. While it might be a bit harder right after filing, many lenders are more than willing to work with people who have gone through bankruptcy. Secured credit cards and subprime auto loans are options to help you rebuild your credit. With sensible financial decisions, you can regain access to credit and improve your financial situation.
Bankruptcy is a practical tool that can provide much-needed relief if you're facing financial difficulties. Don't let these and other myths deter you from considering it as a solution. It's important to seek guidance from a qualified bankruptcy attorney to discuss your options and make informed decisions about your financial future. Remember, bankruptcy is not the end of the road; it can be a fresh start toward a more stable financial future.