For those who are facing insurmountable debts, filing for Chapter 7 or Chapter 13 bankruptcy may be the only option. However, there are many misconceptions about the process. Let’s take a look at five common bankruptcy myths.
- You Will Lose Everything
Many people think that filing for bankruptcy means losing their house, car and other possessions, but this is not the case. In a Chapter 7 filing many assets are protected by bankruptcy exemptions that vary from state to state. You may be able to keep your home, retirement plans, cash, jewelry, furniture and other belongings. If you file a Chapter 13 bankruptcy, you can keep your assets, provided that you abide by the terms of the repayment plan, catch up on mortgage payments and car loans, and pay off any tax debt.
- Bankruptcy Will Ruin Your Credit
Although a bankruptcy will remain on your credit report for ten years, most debts are discharged which gives you a fresh start. By paying your bills on time, you can begin to rebuild your credit rating. It may also be possible to obtain a secured credit card which requires a cash deposit that acts as your credit line.
- All of Your Debts Will be Relieved
While Chapter 7 and Chapter 13 will relieve many forms of debt, there are exceptions, particularly debts for which you are personally responsible. Debts that can be discharged include personal loans, credit cards and medical bills, however, student loans cannot be forgiven in most cases.
- Your Spouse Must Also File for Bankruptcy
Bankruptcy law does not require a married couple to file together. If only one spouse is responsible for the debts, he or she can file alone, and the other spouse will not be affected. Both spouses would only need to file if they owe joint debts.
- Filing for Bankruptcy is a Personal Failing
Many bankruptcies arise because of crises such as being laid off, or a serious illness that leads to significant medical bills . Bankruptcy is not an admission of failure or a character flaw, but rather a way for people to take control of their finances.
Ultimately, the decision to file bankruptcy is difficult and requires serious consideration. If you are having trouble managing your debt, an experienced bankruptcy attorney can help you explore all of your options.