What comes to your mind when you hear the word “bankruptcy”? Perhaps you think that filing means all of your debts will be erased or that you will have to live without your car and house. Misconceptions about bankruptcy are common, so it is worth looking at a top few.
1. Bankruptcy relieves all of your debts
Odds are high that most of your debts will go away in a successful Chapter 7 bankruptcy filing. However, many forms of federal personal income tax liability as well as student loans are not discharged in bankruptcy. Child support is another debt that remains, as is court-ordered restitution. In Chapter 13, you agree to a plan to repay part or all of your debts over several years.
2. You will lose your car and house
The good news is that you can most likely keep your car and house. Chapter 7 bankruptcy cases are normally no-asset, meaning that you do not need to give up the things you need for daily life. However, if you still owe on your house or car, you need to re-affirm these debts and keep paying on them. In some cases, you may be behind on the payments and must bring them current. In Chapter 13 cases, you can likely keep your house and car, too; you can even work to prevent foreclosure using this procedure.
3. Bankruptcy ruins you for life
In fact, not filing for bankruptcy may be of greater harm. After you successfully file, you can start right away to rebuild your credit via means such as secured credit cards. With patience and planning, you can find ways to deal with the higher interest rates that are likely to come in the few years after bankruptcy. If all goes well, you can fully rehabilitate your financial standing in about seven years and sometimes much earlier. You will feel better emotionally without the weight of medical bills, credit card bills and the like that may have been holding you down.
4. Bankruptcy is a character flaw
Character flaw. Moral failing. Admission of weakness. Whatever terminology people are inclined to use, bankruptcy is none of the above. For many people, it is due to situations such as declining wages and medical emergencies. Even celebrities such as Francis Ford Coppola and Kim Basinger have had to file.
5. Bankruptcy is an option only when someone is in complete financial ruin
It is better to meet with a bankruptcy attorney way before you are in total financial shambles. Moving proactively makes it more likely that you can keep the assets you want and recover better from your financial issues. Never wait until you are behind on everything.
To determine if you might be a good candidate for bankruptcy, you should consult with an attorney as soon as possible. Many offices offer free consultations.
