There are a lot of myths and misconceptions about bankruptcy out there. The credit and collection industry has a vested interest in scaring or shaming people away from the process.
It’s almost ironic, since some of the very companies who perpetuate these myths would not hesitate, even for a minute, to file a business bankruptcy if it were in their best interests to do so.
Here are five myths we’ve heard from clients.
#1) Bankruptcy doesn’t really get rid of debt.
Bankruptcy absolutely gets rid of debt, though there are some debts which cannot be discharged through bankruptcy.
The length of time it takes to get rid of your debt also depends on the type of bankruptcy you file. If you file Chapter 7 you’ll get your discharge very fast. If you file Chapter 13 you’ll be working your way through a payment plan for 2 to 5 years, and then the rest of the debt will be discharged.
The debts that can never be discharged are restitution from criminal cases, child support and alimony debts, and tax debts that are less than 5 years old. The courts also will not discharge debts deemed to be fraudulent or taken out with ill-intent.
In addition, student loans are very difficult, though not impossible, to discharge through bankruptcy. The vast majority of borrowers will not be able to discharge their student loans this way.
However, the vast majority of borrowers can discharge medical bills, credit card bills, personal loans, home loans, car loans, and all other common forms of consumer debts. They also gain protection from their creditors while the courts are working their way through the system.
#2) The courts will take everything you own.
Bankruptcy exemptions protect most people’s property. In addition, the form of bankruptcy you file matters. In a Chapter 7, the courts can take some property, such as your house, sell it, and give the proceeds back to your debtors. They will not take your personal furniture, clothes, or household goods.
In a Chapter 13 bankruptcy the courts don’t take any property at all. You simply make a monthly payment in accordance with your bankruptcy plan.
#3) You’ll never outlive the embarrassment.
Nobody informs your family members or your employers about your bankruptcy unless you owe them money. Nobody publishes notices in the paper. While your bankruptcy will be a matter of public record, the truth is that most people won’t know anything about it unless you choose to tell them about it.
#4) Bankruptcy ruins your credit forever.
Bankruptcy can actually improve your credit by up to 100 points.
This is because credit bureaus penalize you much more heavily if you have lots of unresolved delinquent accounts than they do for one bankruptcy filing on your public record. All of those delinquent and past due accounts go away.
Most people can rebuild their credit completely in as little as two years if they practice good money management and use the second chance as intended.
#5) Bankruptcy costs too much money.
Bankruptcy attorneys know they’re dealing with people in dire financial situations and work hard to work with their clients to make bankruptcy feasible. Ask us how we can help you.
Bankruptcy myths are actively harmful to real people struggling to live their lives and sort out their finances.
These myths leave many people in fear and keep them from filing bankruptcy as quickly as they should. If you’re being harassed by creditors or are falling farther and farther behind, don’t delay. Contact our office today to set up a free consultation.
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