In 2018, over 751,000 people filed for bankruptcy in the US. While the thought of filing for bankruptcy can be scary and overwhelming, know that you are not alone. There are a lot of misconceptions surrounding bankruptcy, how it impacts you, and whether it's right for you.
If you are considering bankruptcy, it's important to fully understand the consequences and how it works. This article is here to help you understand some key bankruptcy facts and myths to help you make an informed decision. Read on to learn more.
Myth 1: You'll Never Get Credit Again
This is far from the truth. While bankruptcy does stay on your credit report for 7-10 years, it doesn't automatically disqualify you from receiving any sort of credit or loans again. You might not get the best interest rates out there, but you can start rebuilding your credit as soon as your bankruptcy closes and your debts are discharged.
It's important to avoid getting yourself deep into debt again, so it might be wise to meet with a financial planner or credit counselor to have them guide you on your purchases, the use of credit, and responsible spending.
Myth 2: Bankruptcy Will Tank Your Credit Score
Quite the opposite, actually. Because your debts are discharged and the negative consequences of not paying your debts are removed from your credit report when you file for bankruptcy, your credit score actually might increase after you file. You'll no longer accrue interest on your debts, late fees won't be added, and collection fees go away.
Although the bankruptcy is going to remain on your credit report for a number of years, your credit score will not necessarily be negatively impacted. Eventually, the bankruptcy will get removed and you can start over with a clean slate on your credit report.
Myth 3: I Have To Give up All of My Property
Most people think they will lose all of their possessions when they file bankruptcy, but this is not accurate. You're actually likely to keep the majority of your possessions.
The two most common types of bankruptcy, Chapter 7 and Chapter 13, vary in how they consider your assets.
Chapter 7 bankruptcies that are no-asset cases means that you don't give up any of your personal possessions. You won't have to give up your clothes, personal items, and other things necessary for day-to-day life. Even if you own things that are not exempt, it's likely your creditors don't want them.
Anything that is leased, rented, or heavily leveraged cannot be taken by creditors. If you have luxury items that are paid off, however, you might have to give these up.
If you file for Chapter 13, you keep your assets but they are valued and that value is figured into your repayment plan.
Myth 4: Married Couples Both Have to File
Both spouses do not have to file for bankruptcy. If the majority of the debt is in one spouse's name only, likely if one person entered the marriage with a large amount of debt, that person can file for bankruptcy individually. This is a smart move if the other person in the marriage has a good credit history and a high credit score.
If the debt is shared, though, you should both file for bankruptcy. If the debt is in both names but only one of you files, creditors could come after the other spouse for repayment.
Myth 5: Bankruptcy Discharges All Debt
Filing for bankruptcy will not get rid of all of your debts. Things like taxes, child support, alimony, and debt as a result of fraud that you committed are typically unlikely to be forgiven.
Student loans are generally not forgiven as well. A bankruptcy lawyer will be able to explain which of your debts are likely to be forgiven and which you will still have to repay. In most cases, you can discharge credit card debt, personal loans, and medical bills.
Myth 6: You Can Only File for Bankruptcy Once
Unfortunately, there is always a chance that you find yourself in financial hardship more than once in your life. You can file for bankruptcy multiple times, if necessary. You can file for Chapter 7 once every eight years and Chapter 13 once every two years.
Just because you can file bankruptcy more than once doesn't always mean that you should, though. While you can often recover from one bankruptcy with a bit of time, it's doubly hard to recover from multiple bankruptcies and can drastically lower your credit rating.
Myth 7: It's Hard to File for Bankruptcy
While thinking about filing for bankruptcy might overwhelm you, the process is actually simple if you work with an experienced bankruptcy attorney. Here at Welch Law Firm, P.C., our experienced attorneys will help you decide which type of bankruptcy is best for you, will complete the paperwork to file, and will also walk you through everything you need to know about how the process works.
Myth 8: Everyone Will Know
While bankruptcies are a matter of public record since they are court filings, it's not like they are published widely and your name is blasted all over social media. Chances are, no one other than your attorney, creditors, and anyone you tell will know that you filed for bankruptcy unless they are actively looking for information about your financial status.
Myth 9: Filing for Bankruptcy Is Dishonest
There is a stigma surrounding bankruptcy that is undeserved. People who file for bankruptcy aren't doing it to shirk their debts. They are hardworking people who struggle to pay their bills and simply can't do it anymore.
Calm Your Mind With These Bankruptcy Facts
Hopefully learning these bankruptcy facts has given you some peace about filing for bankruptcy. While you will spend some time rebuilding your credit, accepting that you can't pay your bills and doing something about it can reduce a great deal of stress in your life. The best course of action is to find a reputable bankruptcy attorney to handle the filing for you.
If you would like to speak to one of our attorneys for a free consultation, get in touch with us today.