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Myths About Bankruptcy You Believe That Probably Hurt Your Finances More
Myths and misconceptions are always not good. If we believe them, we will falsely think about something and, hence, make bad decisions based from our faulty beliefs.
This is the exact case on bankruptcy. Many people think that bankruptcy is one big financial monster that will ruin their financial future forever. Case in point: this is a big myth! Bankruptcy is not designed to ruin your financial future. It's designed to help you get back on track.
But because many falsely believe that bankruptcy will ruin their financial future, they avoid it at all costs even if bankruptcy is the only solution to their problems. Because of this, they didn't realize that they're hurting their finances and financial future even more.
So, in this article, we're going to talk about a few myths that surrounds bankruptcy. You will be surprised that most of your fears about bankruptcy are simply unfounded.
But there's the other side of the coin. Some think that bankruptcy is an all-saving grace, and that your financial problems will disappear if you just filed for bankruptcy.
So, let's begin dispelling these myths so that we can make better decisions for our finances and our lives.
1) Bankruptcy will ruin your financial future… FOREVER!
This is not true. Bankruptcy will not ruin your financial future. In fact, bankruptcy is designed to help you get back on your foot. To know how, look at how bankruptcy works:
Once you filed for bankruptcy, your creditors will be prohibited from collecting debts from you. You will instead undergo a repayment plan to pay your creditors – this depends on the Chapter you use. Once you're done with paying your creditors, some unpaid debts may simply be discharged from you. Once they are discharged, you are free again to build your finances!
Of course, that is a short version of how bankruptcy. There's a lot to know. But for now, you can see that bankruptcy is not the financial monster you probably once thought about. It's designed to help you get back on your financial track.
2) You will lose ALL your properties
You may lose some properties in bankruptcy – especially if you filed for Chapter 7 – but you will not lose all.
There is what we call exempt and nonexempt assets. Exempt assets are assets that are protected during the whole duration of your bankruptcy. In other words, they're securely yours. Nonexempt assets are assets that can be sold, hence you may lose them.
Examples of exempt assets include your primary home and car – or home you live to and car you use. They are often exempted from bankruptcy because you need them to live. You see, bankruptcy will not take everything from you. Bankruptcy laws ensure you still keep assets which you can use to rebuild your finances.
3) Bankruptcy will ruin your credit score
Bankruptcy will have a mark on your credit score, but it does not mean you will lose it forever. With financial discipline, you can rebuild your credit score again. Once creditors see that you are good at paying your debts, your credit score will gradually improve – even with a bankruptcy mark on it.
4) Bankruptcy will discharge ALL debts!
This is one example of a hopeful myth. Bankruptcy may discharge many or even most of your debts, but typically, it cannot discharge all debts. Some debts that cannot be discharged by bankruptcy are: student loans, alimony, child support, certain tax debts, etc.
You will still need to pay them even after your bankruptcy case.
5) You can only file for bankruptcy once
Wrong. You are allowed to file for bankruptcy more than once, but keep in mind that there's a time gap before you can file for bankruptcy. For Chapter 13, it's typically 4 years. Chapter 7 is longer – 8 years!
So, before filing for bankruptcy, be sure that you will be financially relieved after the case. Otherwise, it will take you time before you can file for another one.
6) Bankruptcy will SOLVE all my financial problems!
This is the total opposite of fear-based bankruptcy myths. Some believe that bankruptcy will always save them financially.
It's true that you will be relieved – even big time! – but bankruptcy will not solve all your financial problems. Just consider myth #4.
The only thing that can solve your financial problems is financial discipline.
Be disciplined, and you may not need to file for bankruptcy at all!
These are just some of the myths about bankruptcy which you must dispel on your mind. There's actually many more! But these are the basics, and hopefully, by learning the truths about bankruptcy, you can make better decisions about your finances!
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