A surprising number of people are afraid to file bankruptcy because they don’t know how the process works. Others make the choice too lightly because they don’t know the truth about bankruptcy. In this article, we’re going to expose 5 common bankruptcy myths that need to be debunked. We’ll also share the truth behind these myths and the reality of bankruptcy today.
You’ll Lose Everything
There is a common misconception that you’ll lose everything in bankruptcy. The reality is that states have exemptions that let you protect some assets. Depending on where you’re filing and the type of bankruptcy, you could keep some of your assets. In most cases, you could continue to keep the assets as long as you make the payments, including your car and home. If you’re filing for Chapter 13 bankruptcy, it actually suspends foreclosure; this may give you the ability to gradually make payments and remain in your home.
Everyone Will Find Out About It
This has a grain of truth, since bankruptcy filings are public record and appear on your credit report. However, unless you or your business is so famous that your bankruptcy will hit the news, most people around you won’t know unless you tell them. You’re not going to end up with your name and face in the paper for public shaming. If others do find out, you’ll find out that the stigma tied to bankruptcy has eroded.
Bankruptcy Hurts Your Credit for Decades
One myth says that bankruptcy hurts your credit forever. A more common version is that it hurts your credit for ten years or more. In reality, your bankruptcy will remain on your credit report for seven to ten years. However, once your bankruptcy is discharged, you can start rebuilding your credit. You may be able to obtain an auto loan or mortgage within a year of a bankruptcy is discharged.
A related misconception is that one spouse filing bankruptcy wipes them both out. If both spouses have signed up for the debt, whether it is a mortgage or credit card, then both have to file together for bankruptcy. Yet one spouse can file for bankruptcy without the other spouse filing. In cases like this, you should work with law firms that specialize in bankruptcy law, like Tully Rinckey for instance.
Creditors Can Still Come After You If You File for Bankruptcy
The truth is that filing bankruptcy puts an automatic stay in effect. This should stop the calls, bills and lawsuits. And the creditors are supposed to stay away after you receive a discharge order. Once the bankruptcy has been discharged, creditors can’t come after you for debts resolved by the bankruptcy.
There’s No Point in Filing, I’m Not Eligible
This myth contains a germ of truth. It is true that there are some types of debt you can’t discharge in bankruptcy: child support, alimony, certain types of tax debts, criminal restitution and student loans. All other debt can be discharged in bankruptcy. And if you have the types of debt we previously mentioned, you may still benefit from bankruptcy. These debts wouldn’t go away, but bankruptcy could give you breathing room to pay down the debts or renegotiate the loan terms.
There are many myths about bankruptcy that are being circulated by an uninformed public, creditors and debt collectors. We’ve tried to address some of the biggest myths about bankruptcy that hold people back from taking advantage of this legal fresh start.