Many people misunderstand bankruptcy, and many myths can keep people from considering it as an option when they are struggling financially. Knowing the truth about bankruptcy can help you make smarter choices if you are thinking about this route. What misconceptions should you be aware of?
Myth #1: Bankruptcy will ruin your financial future.
Bankruptcy does affect your credit score and stays on your credit report for 7 to 10 years, but it will not impact your finances forever. Actually, it can be a first step towards getting back on track financially. It clears many debts and lets you start rebuilding your credit gradually.
Myth #2: You will lose everything.
Many think that if you file for bankruptcy, you must give up all your belongings. However, bankruptcy laws include exemptions that protect certain types of assets. These can include your home, car, and personal belongings up to a certain value. These exceptions protect your property and allow you to retain enough to lead a normal life.
Myth #3: Bankruptcy will erase all your debts.
While bankruptcy can clear a lot of debt, some bankruptcy cannot erase some debts. These include student loans, alimony, child support and certain taxes. It is important to understand these specifics before you file to see if bankruptcy will really help reduce your financial stress.
Myth #4: Filing for bankruptcy means that you have failed.
This harmful myth makes it seem like using a legal financial option is a bad thing. Bankruptcy is there to help people recover from financial problems. It is not a sign of failure, but a proactive step towards getting your finances under control.
Myth #5: Bankruptcy is a quick and easy process.
Filing for bankruptcy can be complicated. It requires legal paperwork, meetings with creditors and sometimes court visits. You also need to get credit counseling before and financial education after filing. These steps help you prepare for the financial changes that come with bankruptcy.
Myth #6: You will not be able to rebuild your credit.
Though bankruptcy can be on your credit report for up to 10 years, you can start to rebuild your credit soon after. Many receive credit card offers soon after their bankruptcy is done, though these cards might have high rates and fees. By using these new credit lines wisely and making payments on time, you can improve your credit score over time.
Myth #7: You can only file for bankruptcy once.
There are time restrictions on how often you can file for bankruptcy. However, it is possible to file again if you find yourself financially struggling in the future. For example, you must wait eight years to file for Chapter 7 bankruptcy again after a previous Chapter 7 filing.
Bankruptcy is a powerful tool for building a better financial future. Dispelling these myths can help you understand how filing for bankruptcy could help you.