Three common myths about bankruptcy
According to the Director of the Administrative Office of the United States Courts, there were over 730,000 filings for personal bankruptcy in 2019. This year, the percentage of bankruptcy petitions filed with the courts have dropped dramatically. Closure of the courts in response to the coronavirus pandemic is likely one reason. Additional factors may include suspended payments on federal student loans and mortgages as well as leniency from credit card companies and other creditors. Another: misunderstanding about how the process works and how it can impact one’s life.
These forms of leniency and extensions that result from the pandemic will come to an end. When that happens, you may find yourself struggling to meet financial obligations in ways you never imagined. If you find yourself in this situation, it is wise not to let common misunderstandings about bankruptcy hold you back. This post will discuss and debunk some of the more common myths that surround bankruptcy.
Myth #1: You will lose everything.
This is not correct. In many cases, those who go through bankruptcy will complete the process with many assets still intact. Those who use the most common form of relief, Chapter 7 bankruptcy, will generally keep their home and vehicle. This is because bankruptcy law provides exemptions for day-to-day life. Additional exceptions may also apply. For example the law also often protects retirement assets from the reach of creditors during bankruptcy.
Because these assets are generally protected, it is important for those who are considering bankruptcy to seek counsel early on when facing financial difficulty. Do not unnecessarily use these assets to bring down debt.
Myth #2: Bankruptcy will destroy your credit.
This is also not an accurate statement. Yes, your credit will take a hit initially. But it is very likely your credit is already taking a hit and could suffer even more if you do not seek relief through bankruptcy. Missing bills because you cannot make the payments will also negatively impact your credit. This way you are taking control and can focus on your financial future.
Once approved for bankruptcy, you can begin this focus on your financial future by actively rebuilding your credit. Steps that help build your score include paying bills on time and even getting a secured credit card as long as you pay off the balance every month.
Myth #3: Filing for bankruptcy shows failure.
Getting relief through bankruptcy is not a sign of a character flaw. Instead, it shows that you were wise enough to use available tools to help take control of your finances.