Some people hold a bad opinion of bankruptcy, by thinking that it is a sign of financial failure. Other people believe word of mouth about bankruptcy and have uninformed opinions about what it can and cannot do for someone.
Financial experts have been predicting a massive wave of bankruptcy applications for several months now. While many people can dispel these myths and get the help they need, others may not be as fortunate. There are a lot of myths about bankruptcy that keep people from finding the financial freedom they deserve. So, what are these myths?
You can never have good credit after bankruptcy
People often believe that you will never recover your credit score after you file for bankruptcy. While the consequences towards a credit score can last several years, it certainly is not permanent. One of the unexpected benefits of bankruptcy is that, because your debt to income ratio is so low, there is a good chance that you will receive credit card offers within the weeks following your discharged debt. This provides an opportunity for you to start building your credit back up.
Bankruptcy eliminates all of your debt
While bankruptcy allows applicants to reestablish financial freedom and take control over their future, it does not eliminate all debt. There are two forms of debt that people accrue: unsecured debt and secured debt. Unsecured debt is a type of debt that does not have any kind of collateral. Examples of this debt include credit card debt, medical debt, and utility bill debt. Secured debt is a type of debt with collateral, such as home loans and car loans. Chapter 7 bankruptcy only eliminates most forms of unsecured debt.
Bankruptcy will take everything from you
The idea that you will lose everything to eliminate your debt is not accurate. In chapter 7 bankruptcy, applicants only need to sell nonessential items and assets, like secondary homes or cars, heirlooms or expensive art, and possibly retirement accounts. Chapter 7 applicants will still be able to keep essential possessions that are necessary for living.
In chapter 13 bankruptcy, applicants do not lose any possessions or assets. With this option, an applicant restructures their debt repayments into a three-year to five-year plan of monthly payments. The courts discharge any remaining debt after the payment.
Do not assume the worst about bankruptcy
It can be hard to determine what is real and what is a myth about bankruptcy. The best way to dispel any myth about bankruptcy is to consult with an experienced bankruptcy lawyer. Answering essential questions about your financial future can help you make the right decision to protect your best interests.