It is natural to have many myths about bankruptcy because the bankruptcy code is difficult to understand initially unless proper guidance is provided. Also, not many people understand the importance of hiring attorneys. An attorney can provide you with guidance on how to resolve your debt issues and what steps need to be undertaken to file for bankruptcy.
Having said that, it should be the responsibility of the debtors to clear their notions regarding the bankruptcy myths and facts, so that they can be mentally prepared to file in the right way.
14 Common bankruptcy myths and facts
Bankruptcy is complicated. Clear your myths so that it is easy to file when you feel your debts are unmanageable.
1. It is difficult to file for bankruptcy
Although the process of filing for bankruptcy can be taxing, it isn’t as difficult as it sounds to be. Once you are qualified for a chapter, you will be directed as to what to do.
2. You can be fully debt-free
Though it is potentially true that bankruptcy can remove nearly all the debts, in actuality, it does not discharge you from all the debts. Chapter 7 and chapter 13 bankruptcy, each discharges certain kinds of debts, including credit card debt, business debts, past bills that are due, collections, and other kinds of debts. Child support, alimony, court-imposed fines are some debts that cannot be discharged in bankruptcy.
3. You can settle your finances easily
Just because you have cleared your debts, that does not mean that you won’t have to worry about the possible outcomes. If you are unable to address the situation, then it would be very difficult to recover from the financial situation or could cause you to care less about your financial habits.
4. Bankruptcy can make you go weak on your knees
Many people have this myth regarding bankruptcy. You feel embarrassed to go to the court to file for bankruptcy. But it must be clearly understood that you are doing it to save yourself from financial troubles. You are filing for bankruptcy to become debt-free. Filing for bankruptcy does not mean that you are financially or morally corrupt. It means that you want to put an end to your constant worries and you are ready for a fresh beginning.
5. Your medical bills can’t be discharged
Almost all unsecured debt, like credit cards, personal loans, and other important bills will remain dischargeable in bankruptcy. So, you can easily discharge your medical bills without feeling guilty about it. However, as already mentioned, there are some bills which you can’t discharge through bankruptcy.
6. This will continue to impact your credit report for 10 years
Many Americans don’t apply for bankruptcy due to embarrassment or humiliation. Although it is true that bankruptcy will remain on your credit report for as long as 10 years, this does not indicate that your credit score will be entirely ruined. In fact, with the right support and guidance, you can take steps towards improving your credit score and live a debt-free life, once and for all.
7. You can go completely broke
Almost all the bankruptcy cases filed by the people are “no asset” cases where the debtor can keep everything he/she owns. That’s because exemptions protect assets that the debtor can have.
Few assets like pensions are simply beyond the reach of bankruptcy trustees and creditors. So, you may not lose everything even if you file for bankruptcy.
8. It is difficult to file a chapter
If you take the help of an experienced attorney, then filing for bankruptcy can be smooth and easy. Difficulty can only arise if you are failing to present all the documents needed for bankruptcy. However, the debtor has to pay the attorney fee which is quite a good amount.
9. Filing bankruptcy can eliminate all taxes
Taxes like “income” taxes and other old taxes, which are more than 3 years old, can be eliminated through bankruptcy. However, payroll taxes or fraud penalties cannot be eliminated in bankruptcy.
10. Your spouse will also have to file along with you
It is not mandatory for your spouse to file for bankruptcy with you. A married person has the option to invite his/her spouse to join in the bankruptcy, but may not have to. So, both of you need to decide and if required, you can talk to a lawyer to make the decision.
11. Declaring bankruptcy can badly affect your retirement plans
False. Usually, your retirement funds stay unaffected when you file for bankruptcy. However, it is better to talk to a lawyer to get your concepts cleared.
12. You can be fired if you file for bankruptcy
Just because you have filed for bankruptcy does not mean that you will be fired. Employers may not offer you a future job at all, but firing a person just because they have filed bankruptcy is illegal. However, you need to worry more about this only in the case of certain professions like a lawyer.
13. Declaring bankruptcy means you no longer need to make payments
If the debt occurs after filing for bankruptcy, the court won’t include it in your bankruptcy. It is a post-petition debt and you are supposed to pay it. Examples of such post-petition debts include rent and lease payments, domestic support obligations, insurance payments, and other utilities.
14. Bankruptcy is the only way out of your financial problems
In many cases, debtors opt for debt consolidation or debt settlement. Debt consolidation can combine your multiple debts into a single payment. In debt settlement, you can hand over your debt responsibilities to debt settlement services who can negotiate with your creditors on your behalf. Bankruptcy can be your last resort to get rid of your debts.
Taking everything into account, it can be understood that bankruptcy is very much advisable to those whose financial life is going haywire. In such a difficult phase, you would want to put an end to your woes by filing for bankruptcy. It can make you debt-free and you will feel optimistic about your future prospects, too.