Debunking 10 Myths About Bankruptcy

You don't have to think about filing for bankruptcy every day, but if you're in a difficult financial situation, it's helpful to know the basics. There are different types of bankruptcy, and it depends on which one you fall under. However, bankruptcy is usually a last resort, as there are other, less formal ways to resolve financial problems. There is a lot of controversy surrounding bankruptcy, most of which is related to myths and misconceptions. If you are considering bankruptcy, it may be a good idea to consult with a bankruptcy attorney in Cabot, AR, before jumping to any conclusions. We debunk the 10 most common myths about bankruptcy so you can make an informed decision.

1. Bankruptcy erases all debts. 

If you qualify for Chapter 7, bankruptcy can help you discharge all your unsecured debts. Chapter 13 or other business bankruptcies may provide only partial relief, depending on your financial situation. If you decide to file for bankruptcy, you will have to repay the majority of your debts, usually in manageable installments over a long period of time. Unsecured debts such as mortgages, car leases, student loans, and child support are not discharged.

2. Your credit will be permanently ruined. 

It's true that your credit score will drop after bankruptcy. However, if it's already bad (less than 600), it won't make much of a difference. With sound financial management, you can have good credit within a few years. If you start paying your bills on time and follow your bankruptcy payment plan to pay off your debts (if applicable), your credit score will improve quickly.

3. used for criminal purposes

Many people have the impression that corrupt managers and officials use bankruptcy to avoid paying debts. Things like this happen from time to time, but you should know that it is illegal. Anyone who uses bankruptcy to cover up their shady operations should expect serious legal consequences. Bankruptcies are actually intended to help people who are suffering from financial hardship. It can give them a fresh start.

4. Make the most of your credit privileges. 

There's a crazy myth that if you max out all your credit cards before filing for bankruptcy, you can pay off all your debts. Be aware that this is a trap and could result in fines for credit card fraud. The bankruptcy court will examine your finances before approving your application. This kind of suspicious activity only creates legal problems.

5. creditors will harass you. 

Many people believe that filing for bankruptcy will anger creditors and cause more problems. The truth is that bankruptcy automatically gives you protection from debt collectors. If the creditor still tries to approach you and demand payment, you may be subject to legal sanctions and possibly an injunction.

6. Bankruptcy is a social stigma. 

Bankruptcy was once considered shameful, but times have changed. Today, many businesses and individuals use bankruptcy to resolve their financial problems. Therefore, there is no need to be ashamed of it. If bankruptcy saves your home or business or prevents you from breaking the law, consider it a blessing.

7. You can never apply for a loan again. 

Bankruptcy lowers your credit score, which can make it difficult to get new credit quickly. You should first achieve financial stability and work on improving your credit score anyway. If you rush to take out a new loan, you may end up paying excessive interest.

8. The government will confiscate your assets.

If you file for Chapter 7, the bankruptcy trustee can liquidate your non-exempt assets to compensate creditors. You can still keep your tax-exempt assets, such as your family home and a regular car you use every day. A reorganization bankruptcy like Chapter 13 allows you to secure the assets you desire (under certain conditions).

9. Bankruptcy during a marriage affects both partners. The assets of both partners are only at risk if they file for bankruptcy jointly to manage joint debts. If your spouse has debts in their name that are unrelated to you, you don't have to worry about them being responsible.

10. She can only submit once.

I hope you never have to think about bankruptcy many times in your life. However, if you have been affected by the financial crisis more than once, multiple submissions are permitted. Chapter 7 allows him to file every eight years, while Chapter 13 allows him to refile after two years only if he has paid off the debt from the previous filing.

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