Bankruptcy: 3 Common Myths

As a result of unforeseen circumstances, individuals who are generally incredibly financially responsible can still find themselves in a world of debt. Thankfully, bankruptcy provides an effective solution for individuals to get a fresh financial slate to start a new life. However, there are numerous misconceptions surrounding bankruptcy that keep individuals in debt from seeking this particular solution. If you are in debt and would like to seek relief but aren't sure about bankruptcy because of the myths, keep reading to learn the truth.

Myth #1: You'll Lose Your Assets If You File For Bankruptcy

In some instances, Chapter 7 bankruptcy may require that specific assets are liquidated in an effort to pay back a [portion of what you owe to creditors. What this means is that there will be the potential for you to lose some of the property that you own; however, some states have a very extensive list that protects certain assets. Often, you will be allowed to keep most—if not all—of your belongings. If you file Chapter 13 bankruptcy, this concern is eliminated completely since liquidating assets isn't part of this particular bankruptcy process.

Myth #2: You Will Eliminate Every Debt By Filing for Bankruptcy

Though it is completely possible to eliminate a significant percentage of your debt by filing for bankruptcy, you will not receive complete financial relief. In a Chapter 7 bankruptcy, the only kind of debt that can be discharged is unsecured debt. Therefore, any secured debts that you have will need to be paid back to creditors, and these debts include back taxes, student loans, child support, and alimony. With Chapter 13 bankruptcy, all debt is restructured into a payment plan that you can afford to pay back over the course of three to five years.

Myth #3: Your Credit Will Be Ruined Forever If You File For Bankruptcy

One of the main reasons that individuals are leery about filing for bankruptcy is because they are worried that their credit will never be able to recover. While it is true that your credit will take a hit when you declare bankruptcy, you will actually get the chance to improve your score again. Now, if you are thinking about filing for bankruptcy, there is a good chance that your credit is already suffering as a result of your existing financial situation. Once all of your debt has been discharged, you can immediately begin focusing on rebuilding your credit.

As soon as you can separate fact from fiction, you can start making education decisions regarding whether filing bankruptcy is for you. If you need more information, contact a law firm service in your area.