On this blog we like—from time to time—to talk about common misconceptions surrounding bankruptcy. This is an important topic, because bankruptcy is a legal process that is often misunderstood or misrepresented, and this can have an impact on a debtor’s decision about how to approach debt relief. While bankruptcy is not the only means of debt relief, it is an important one.
One of the biggest concerns debtors have regarding bankruptcy, is that filing will do irreparable harm to their financial life. The reality is that this is not true. In fact, filing for bankruptcy can actually have an immediately positive impact on one’s credit in some cases. And although a bankruptcy filing remains on one’s record for a number of years after discharge, one can regain the ability to qualify for credit fairly quickly. Recovering from bankruptcy takes time, but it is by no means impossible.
Another misunderstanding or concern among debtors is that filing for bankruptcy will force them to get rid of important assets. This is particularly untrue of Chapter 13 bankruptcy, in which one gives up no assets, but simply comes up with a repayment plan. In Chapter 7 bankruptcy, some assets will have to be liquidated in order to pay off creditors, but the most important assets are considered exempt and so can be kept.
A third misconception is that only dishonest people file for bankruptcy. In truth, most people who are struggling with burdensome debt do not want to file for bankruptcy. It is only a relative few who try to take advantage of the system. For the rest, bankruptcy is a last resort and should not be attached with as much stigma as it sometimes is.
Those who feel they may benefit from a bankruptcy filing should speak to an experienced attorney to have their case evaluated.
Source: Investorguide.com, “Debunking Four Myths of Bankruptcy,” Jon Clarke, April 3, 2014.