The thought of filing for bankruptcy can be scary and unpleasant, but that’s often because people have heard things about the bankruptcy process that are simply not true.
You may feel better about filing for bankruptcy after debunking common bankruptcy misconceptions:
Myth #1: You’ll be left with nothing after bankruptcy
Truth: You can choose between several different kinds of bankruptcy. For example, low-income filers commonly choose Chapter 7 bankruptcy. There is, however, a possible price associated with Chapter 7 bankruptcy. It’s often believed that Chapter 7 bankruptcy will cause filers to lose all of their assets. While there is a slim chance that people will have their non-exempt assets sold to resolve debts, the vast majority of filers (95% by most estimates) retain ownership of all of their property. Only a few filers have any luxury property and other non-exempt assets sold as part of the Chapter 7 bankruptcy process.
Myth #2: Your credit score will never recover
Truth: It’s commonly understood that filers will see their credit scores drop after filing for bankruptcy. A lowered credit score can limit a filer’s chance of getting loans, mortgages, housing and credit cards in the future. While there’s no way to avoid a temporary score dip, it doesn’t mean that a filer’s credit score is permanently lowered. By making smart financial choices moving forward, filers can slowly raise their credit score again, possibly higher than it has ever been before.
Myth #3: Bankruptcy will resolve all of your debt
Truth: In most cases, a filer will benefit from having personal loans, utility bills, credit card bills, medical bills and late rent resolved after a successful bankruptcy case is closed. However, depending on the kind of bankruptcy someone is filing for and how much debt they’ve accumulated, they may still have some unpaid debt after filing for bankruptcy. For example, bankruptcy will not result in a discharge of secured debt or overdue child support payments.
Myth #4: Bankruptcy only works once
Truth: People can file for bankruptcy more than once. Filers are required to observe a time limit before they file for bankruptcy again after a previous filing has concluded.
Myth #5: Everyone will know you filed for bankruptcy
Truth: You may have heard or read in the news about a large corporation filing for bankruptcy. This can make you fear that everyone will know about your bankruptcy. While bankruptcy is a matter of public record, typically, the only people who will be aware of your bankruptcy are creditors, anyone who runs your credit report for a few years and the people whom you choose to tell.
If you’ve decided that bankruptcy is right for you, you will need to be aware of your legal options. Speaking with an experienced legal professional can empower you with this insight.