When debts grow out of control and you simply cannot make ends meet, bankruptcy is sometimes the only option. While bankruptcy is not an easy way out, it can help you legally overcome your debt and improve your financial outlook. Unfortunately, there are many bankruptcy myths that are perpetuated. Understanding these myths will help you to fully understand the truth regarding declaring bankruptcy.
Types of Bankruptcy
There are multiple types of bankruptcy that can be filed, though there are two that are more common than others. Chapter 13 is often referred to as the “wage earner’s bankruptcy” because you are required to pay monthly payments. When people file for bankruptcy, they sometimes hire a lawyer to help.
Chapter 7 is best for those who have mostly unsecured debts. The process can typically be finished in six months or less, though you may be required to submit non-essential assets for liquidation to pay off the debts you owe.
5 Myths About Declaring Bankruptcy
As with most things, there are always those who spread falsities regarding bankruptcy. Unfortunately, bankruptcy is still considered a somewhat taboo subject, even though millions have filed. The following are some of the biggest misconceptions regarding declaring bankruptcy.
1. One of the biggest myths regarding bankruptcy is the individual will lose everything. Many people mistakenly believe filing for bankruptcy means they will have to give up their house, car, and all assets. For most people, Chapter 7 is a non-asset bankruptcy, so you do not give up anything.
2. Many people also believe the myth that all their debts will be wiped out by declaring bankruptcy. There are some types of debt that are not forgiven in bankruptcy, including student loans. Debts you are personally responsible for are generally not forgiven.
3. The belief that filing for bankruptcy means you are a big failure is truly erroneous. Many people believe they are admitting failure if they file bankruptcy. Most people end up filing bankruptcy because of a loss of wages rather than poor financial management.
4. A common myth that never seems to die down is the belief that your financial future will be ruined by bankruptcy. Although you will certainly have limited access to credit for about ten years, your credit score will likely begin to see improvements shortly after your bankruptcy is declared. Filing for bankruptcy is not the end of your future.
5. Some people mistakenly believe it would be better to pay off their debts than file for bankruptcy. If your debts are greater than 50% of your income, it would be wise to at least consider declaring bankruptcy because paying off the debts will be difficult.
Benefits of Declaring Bankruptcy
· Takes away a great deal of stress
· Can prevent foreclosure
· Allows for a fresh start
Although it is not right for every circumstance, there are many benefits to declaring bankruptcy. Most people find it easier to consult with a bankruptcy lawyer before they make a final decision.
Conclusion
Declaring bankruptcy does not mean you have failed and it certainly will not ruin your financial future. Taking the time to learn about your bankruptcy options will help you to make the best decisions for your needs. Bankruptcy will help you to overcome the vast majority of your debts and give you peace of mind in knowing there is less financial stress.
My cousin just got fired from her job along with her husband. She isn’t sure how she is going to take care of her kids. She has been thinking about filing for bankruptcy with the help of a professional in order to be more effective. Thanks for explaining how she can still manage finances, but paying off debts can be harder that filing for bankruptcy.
Thank you for mentioning how you should consider declaring bankruptcy if your debts are 50% higher than the amount of money that you earn. My wife and I recently lost our jobs when we took too much time off for our vacation last weekend, and we’re worried that we may not be able to pay off the credit card debt that accumulated when we bought a new car last month. We’ll find a legal professional that can help us look over our options.
I had no idea that chapter 7 is typically a non-asset bankruptcy and will allow you to keep your car and other assets. My brother wants to file for bankruptcy since he recently lost his job last month, but he needs to make sure that he can keep his car since he is responsible for driving his daughter to school every morning. I think he should consider seeking legal help so that he can better understand the bankruptcy process.