Many people who are overwhelmed with debt are still reluctant to file for bankruptcy. The fear and stigma from misinformation often prevent them from seeking help.
The truth is that bankruptcy is a legal financial tool that can provide you with relief and a fresh start. Here are some common myths and the truth behind them.
1. Filing for bankruptcy means you’re a financial failure
One of the most harmful myths is that bankruptcy is a sign of personal failure. You may be surprised to know that many people file for bankruptcy due to circumstances beyond their control, such as job loss, medical bills, divorce or unexpected emergencies.
Even lawmakers recognize that financial hardship can happen to anyone, which is why bankruptcy laws exist. Using the legal protections available to you is a responsible decision.
2. You will lose everything you own
Another reason people are resistant to filing for bankruptcy is the fear of giving up their home, car and personal belongings. Federal and state exemption laws allow you to protect essential assets, such as:
- Your primary residence (depending on your equity)
- A vehicle
- Retirement accounts
- Household goods and personal property
3. You will permanently ruin your credit
While it’s true that bankruptcy will affect your credit, it does not destroy it forever. You may be able to begin rebuilding your credit soon after the bankruptcy is discharged. With responsible financial behavior, you could see your credit score improve in 12-18 months.
4. Bankruptcy eliminates all your debt
Bankruptcy can eliminate many unsecured debts, such as credit cards, medical bills and personal loans. But some obligations will remain, including:
- Student loans
- Child support and alimony
- Court fines and judgments
Bankruptcy is not a solution for everyone, but it’s not something to avoid based on myths either. If your debt has become unmanageable, speaking with a legal professional can help you decide whether bankruptcy is the right choice for you.