Bankruptcy can be a powerful legal tool to help people get out of debt. However, it is also fraught with myths and misconceptions. This can make people avoid bankruptcy when it is most needed.
Here are the five most common myths and their truths.
Myth 1: Bankruptcy Permanently Ruins Your Credit
The myth that bankruptcy will permanently ruin your credit is one of the most common. Although bankruptcy can negatively impact your credit score it is not permanent. Chapter 7 bankruptcy remains on your credit history for 10 years and Chapter 13 bankruptcy for 7 years. Many people start rebuilding their credit in the months following their discharge. You can improve your credit score over time by following responsible financial practices, such as paying on time, using secured credit cards, and paying bills in full.
Myth 2: All Your Assets Are Lost in Bankruptcy
Most people think that bankruptcy will mean losing all their assets. Bankruptcy laws protect your essential assets, such as your car, home, retirement account, and personal property. What assets are at stake will depend on the type of bankruptcy that you file. Chapter 13 is one example where you can keep your assets and pay off your debts through a repayment plan approved by the court.
Myth 3: Bankruptcy Means You’re Irresponsible Financially
The truth is that bankruptcy is not a sign of failure or irresponsibility. People often file for bankruptcy because of circumstances that are beyond their control. This includes medical bills, divorce, and job loss. Instead of being a sign that you are a failure financially, bankruptcy is a responsible way to regain control over your finances after other options have failed.
Myth 4: You Can Never Get Credit Again
A common myth is the idea that bankruptcy makes it impossible to obtain credit in the future. Many people can qualify for credit after filing for bankruptcy, even though it might be harder at first. Credit-builders and secured credit cards can help you rebuild your score. You can rebuild your credit over time by regaining access to traditional options such as auto loans and mortgages.
Myth 5: Bankruptcy Discharges All Types of Debt
Although bankruptcy can eliminate many types of unsecured loans and debts like medical bills, credit card debt, and personal loans, it does not eliminate all debt. Some debts such as student loans, child support and alimony obligations, or some tax obligations cannot be discharged by bankruptcy. Before filing, it’s important to know which debts are affected.
This article was written by Alla Tenina. Alla is the best Ventura bankruptcy lawyer, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.