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What are some common myths about bankruptcy?

On Behalf of | May 20, 2024 | Bankruptcy

Divorce, job loss, a serious illness or other unexpected life situations can lead to extensive debt. If you find yourself with a large amount of debt, you may start to consider filing for bankruptcy.

Filing for bankruptcy is often misunderstood, leading to many myths and misconceptions. Understanding the truth about bankruptcy can help you make informed decisions when facing financial difficulties.

Myth 1: You lose everything in bankruptcy

A common myth is that filing for bankruptcy results in losing all personal possessions. In reality, bankruptcy laws include exemptions that allow you to keep essential assets. These exemptions can include a primary residence, a vehicle, household goods and personal items.

Myth 2: Bankruptcy permanently ruins credit

Another misconception is that bankruptcy will permanently damage your credit. While it is true that bankruptcy affects credit scores, this impact is not permanent. Bankruptcy can stay on a credit report for up to ten years, but you can start rebuilding your credit soon after filing.

Myth 3: Only financially irresponsible people file for bankruptcy

Many believe that only those who are financially irresponsible file for bankruptcy. This myth overlooks the fact that bankruptcy can result from unforeseen circumstances. These situations can lead to overwhelming debt, even for those who manage their finances responsibly.

Myth 4: Filing for bankruptcy clears all debts

While bankruptcy can eliminate many types of unsecured debt, it does not discharge all debts. Some obligations, such as student loans, child support, alimony and certain tax debts, typically remain after bankruptcy.

Recognizing the realities of bankruptcy can help you make informed decisions and take appropriate steps toward financial stability and recovery. It is important to approach bankruptcy with accurate information and a realistic perspective.