People think that filing for bankruptcy means their credit will be completely destroyed for as long as the bankruptcy stays on their record. The truth is that bankruptcy can actually help your credit because once you get to the point where you need to file for bankruptcy, your credit is already very low. Bankruptcy eliminates those things on your credit and replaces them with just one item. As long as you keep building your credit by making payments on time and being financially responsible, you could be offered credit cards within a year or two and get loans not long after that.
2. All your debt will be discharged
There is a common myth that when you file for bankruptcy, all your debt will be instantly wiped clean and you’ll start anew. However, there are certain types of debt that will not be discharged. For example, student loans are nearly never discharged (there are exemptions but they’re very rare). Debts acquired through fraud, certain taxes and spousal support are just a few more examples of debt that will remain after a bankruptcy. Also, if you file for Chapter 13 bankruptcy, you will be put on a payment plan to pay back almost all of your debt.
3. The court will take all your possessions
A cartoonish portrayal of a bankruptcy is the government coming into your house, taking your jewelry and clothing and leaving you with nothing but moths in your pockets. That’s simply not the case. There are a lot of protections that keep the government from taking your things. For example, your house, your car, clothes and other items are protected in most states. In fact, bankruptcy can even help stop creditors from taking your house in a foreclosure.
4. Everyone will find out about your bankruptcy
Although bankruptcy is a matter of public record, very few people actually go searching to find out whether someone has filed for bankruptcy. The people who are legally notified are the people you owe money to. Everyone else will usually never find out unless you tell them or they intentionally look for you in the government’s complicated database.
5. Only really poor people and deadbeats file for bankruptcy
This is perhaps one of the most harmful bankruptcy myths out there because it’s this thought that prevents people from filing. You don’t have to be dirt poor or a failure to file for bankruptcy. Sometimes getting laid off, suffering in a stagnant economy or other unforeseen circumstances could result in financial difficulties. It’s important not to wait until you’re in too much debt because that will lead to bigger issues and more undue stress.
Jack Thompson is a freelancer who writes on a wide range of topics. He currently blogs for a Phoenix bankruptcy attorney.