Myths of Bankruptcy
While more than a million U.S. citizens have filed for bankruptcy in each of the past few years, some bizarre myths about bankruptcy still remain.
Perhaps the most persistent myth is the idea that some sort of stigma is associated with bankruptcy. In today's credit-based economy, a vast number of financially responsible people file bankruptcy to relieve their debts. It's not taboo like it may have been in the past.
Bankers, doctors, even pastors have filed bankruptcy. Heck, even Donald Trump has filed for bankruptcy!
Bankruptcy Myths Busted
Like Bigfoot, the Loch Ness Monster and free lunches, some bankruptcy myths persist despite a complete lack of evidence of their existence. Below, some popular myths are debunked:
- Bankruptcy will permanently destroy my credit. Sure, bankruptcy will appear on your credit report for seven to ten years, but many people filing bankruptcy already have awful credit thanks to maxed out credit cards and a history of missed payments. By relieving your debts, you'll have the chance to rebuild your credit after you file. Many people find their credit improves over time because their old debts are removed.
- I will lose everything in bankruptcy. This is a stretch. In Chapter 7 bankruptcy, some property may be liquidated, but each state has exemptions for several items, including cars, homes, clothing, and government benefits, which you get to keep. In most cases of Chapter 7, filers do not lose any property. If you have lots of valuable property, Chapter 13 bankruptcy can help protect it from creditors and, again, most people are allowed to keep their home and cars while they work to repay their debt over time.
- Bankruptcy will take too long. In most cases, Chapter 7 only lasts three or four months.While Chapter 13 bankruptcy may last for a few years, it allows a filer to completely reorganize their debts and repay them at a reasonable pace.
- Bankruptcy is just for rich people. Not at all. Chapter 7 bankruptcy is expressly designed for people with limited income. Check out the Chapter 7 means test to see if you might qualify.
- People with jobs can't file bankruptcy. Again, this is a total myth. Chapter 13 is known as the "wage earner's plan" because it allows working people to pay off their debts over time while maintaining their jobs.
- Bankruptcy won't get creditors off my back. On the contrary, the automatic stay, which usually kicks in immediately after a person files bankruptcy, is designed to stop wage garnishment, prevent home foreclosure, and block creditor calls and letters.
If you have other questions about bankruptcy or want more facts about bankruptcy, talk to a local bankruptcy lawyer directly.
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