Correcting Common Bankruptcy Misconceptions
Bankruptcy seems to be one of the most misunderstood concepts we have. It is so misunderstood that we avoid it when we probably should take it. We never do the same to, say, surgeries or divorce – even though they're also extremely painful. We just know that we need to take that surgery when our body needs it, and inasmuch as divorce is painful on many sides, we file for one if that's what we think will help us in the long-run.
This is not the case in bankruptcy because, for one, it's riddled with misconceptions that people choose to avoid it. And this can be very harmful because they can make bad decisions about bankruptcy – such as avoiding it when they should take it – hence, worsening their problem.
So, for this article, we're going to answer some of the most common bankruptcy misconceptions and what's the truth behind them. You will see, bankruptcy is not as bad as you think!
Bankruptcy will destroy my financial future!
Our view about bankruptcy is so negative, we avoid it at all cost. The same is not necessarily true for surgery or even divorce, which is also, more or less, as painful as bankruptcy.
Bankruptcy will not destroy your financial future. In fact, it was created to help you get back on your financial track. We can see this by further exploring (and correcting) other misconceptions – especially negative misconceptions – about bankruptcy.
I will lose all my assets and properties in bankruptcy – including my house and car!
It's true that you can lose your assets and properties during a bankruptcy case, however, you won't necessarily lose them right away.
For one, you should know that your assets will be divided into two: exempt and nonexempt assets.
Exempt assets are assets that will be protected during the entire bankruptcy case. In other words, they won't be taken away from you – and that's guaranteed! Nonexempt assets are the opposite: they can be sold if necessary as payment to your creditors.
Exempt assets often include your primary home and car – home you live to and car you use – because lawmakers understand that you need these basic assets to keep your earning ability and a decent standard of living. As mentioned above, bankruptcy is not intended to destroy you; it is intended to help you – and seizing your primary house and car will only push you downward, so they're often exempted during a bankruptcy case.
For the nonexempt assets, they won't be liquidated right away. In fact, it's possible that you can keep some, most or, in some situations, all of them. However, be prepared to lose some of them because they're part of the payment process to your creditors.
Bankruptcy will ruin my credit!
It's true that bankruptcy can stay up to 10 years on your credit record. However, it will not necessarily stop you from taking new loans.
While it may take a while to rebuild your credit, with patience, discipline and commitment, you can rebuild your credit over time.
I can only file for bankruptcy once!
There is no limit as to how many times you file for bankruptcy. However, keep in mind there's a time gap when filing for another bankruptcy – usually 4 to 8 years. So, be sure that your bankruptcy case will really lift you up on most, if not all, of your debts.
Also, be sure that you have a proper financial plan and discipline – it may take a few years before bankruptcy can rescue you again.
I can pay for my debts anyway!
Sure. But if your creditors kept calling you at night because of your unpaid debts, maybe it's time to file for bankruptcy.
Bankruptcy is not just about settling your payment plan to your creditors. It's all about stopping your creditors from collecting debts from you because everything will undergo through the bankruptcy's payment system. This is called the "automatic stay".
Also, if your debt is way higher than your income, it is very unhealthy – both physically, mentally and financially – to try paying them all. There are situations where our debts are just so big, we need a lift to be saved – and that lift could be bankruptcy.
Bankruptcy will save me from my financial problems!
Let's add one positive misconception about bankruptcy. This misconception is the total opposite of our previous list.
But just as bankruptcy is not to be fear of, you should never use bankruptcy as an excuse to be financially undisciplined.
Bankruptcy will not save you from all your problems – it may not even clear all of your debts!
What will save you (and keep you from) financial problems is financial discipline. Be disciplined, and you'll have a good chance of dealing with any financial problems that will come along.
Bankruptcy will remove all my debts!
Since we have mentioned it already… no, bankruptcy will not necessarily remove all your debts.
Some debts are just non-dischargeable, such as student loans, child support and certain tax obligations and debts.
On the good side, though, bankruptcy can discharge many or even most of your debts. So if you're really drowning in debt, bankruptcy is very worth considering.
A bankruptcy lawyer can help you
Now that you know the truths behind some common bankruptcy misconceptions, if you're in deep debt right now, maybe filing for bankruptcy is an option.
You don't necessarily need to file for bankruptcy. It's best you check your finances first and see what you can do. Negotiating with creditors can also help.
However, if you choose to file for bankruptcy, a bankruptcy lawyer can help you with your case. LG Law Firm have the best bankruptcy in California. We make sure our lawyers are not only skilled, but is passionate towards their clients – we believe in helping first before earning!
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