There are many myths and misconceptions surrounding the bankruptcy process. When making the decision whether to initiate the bankruptcy process, it’s important to be able to separate fact from fiction. Here are 7 of the most common myths surrounding bankruptcy.
- Bankruptcy will ruin my credit.
For many people considering filing, this may be a moot point as they likely already have a low credit score. In any event, filing for bankruptcy can actually sometimes improve your credit score. As far as your credit report goes, a Chapter 7 bankruptcy will show on the report for 10 years. Again, this may not be a bad thing. Borrowing opportunities may actually increase when prospective lenders see that you filed and are in the process of rebuilding your credit.
- I make too much to file for bankruptcy.
Even if you’re taking home more than your state’s median income, you may still be eligible for Chapter 7 bankruptcy. To qualify for Chapter 7, you need to pass a mean test. Basically, this entails that if you have a certain amount of cash left over after subtracting your expenses from income you will be denied. However, you may very well have significant expenditures that outweigh your income. This is where a good bankruptcy attorney comes in; your attorney can prove your need for bankruptcy relief in spite of your income.
- I’d be better off paying all of my debts.
While filing for bankruptcy is undoubtedly a serious financial step to take, it may still be the right one. The easing of financial stress and the sense of “wiping the slate clean” can provide a huge sense of relief. According to Time’s Money column,
“If your debts are more than 50% of your annual income and you see no way to pay them off within five years, bankruptcy is likely your best path toward living debt-free.”
- Filing for bankruptcy means I’m lazy or a deadbeat.
Many people buy in to the myth that bankruptcy is a personal failing. In fact, bankruptcy is simply a tool that can help people regain control over their financial state. Many people who file for bankruptcy have exhausted all other options in trying to resolve their debt problems. With stagnant wages and medical costs that continue to sky rocket, the truth is that bankruptcy is nothing more or less than a remedy for a specific set of financial conditions that can happen to anyone.
- If I file, I’ll lose everything.
The truth is you may be able to keep a lot more than you think. The majority of Chapter 7 bankruptcies are no-asset cases where the debtor doesn’t have to give up any possessions. In these cases, you are allowed to carve out exemptions for basic assets that are necessary for your daily life. This can vary depending on the state; for people in Oregon or Washington, your best bet is to contact a reputable bankruptcy attorney in your state to learn more.