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Separating myth from fact in Chapter 7 bankruptcy

Over the last several years, news of the financial and housing crises has triggered a lot of discussion about personal debt and bankruptcy filings. Though Tennessee bankruptcy filings have become more common over the same time period, many people still hold misconceptions about the Chapter 7 filing process and consequences. Recently, U.S. News & World Report addressed these "bankruptcy myths."

For instance, many people believe that filing bankruptcy is a sign of irresponsible and uncontrollable spending habits, but this often not the case. People can become financially overloaded due to any number of circumstances. One unexpected medical emergency can push a financially responsible family into bankruptcy.

Another common myth is that bankruptcy discharges every kind of debt. Several types of debt are dischargeable in bankruptcy, but some are not. Student loans, child support, alimony and victim restitution are all non-dischargeable debts. Furthermore, tax debts may not be discharged in certain cases. This raises the importance of making the differentiation between secured and unsecured debts. Chapter 7 bankruptcy can clear many types of unsecured debt.

Contrary to popular belief, an impending bankruptcy filing is not an invitation to spend with abandon. Excessive spending intentionally and immediately before filing for bankruptcy can be considered fraud under the federal bankruptcy laws, depending upon the circumstances. Fraudulent debts are also non-dischargeable in bankruptcy.

In many cases, individuals incorrectly assume that their credit score will be permanently ruined by a bankruptcy, but that should not hinder you from considering bankruptcy. People are often able to obtain a credit card and begin improving their credit score in as little as six months following a bankruptcy.

At the same time, people often believe bankruptcy is a "cure-all" for financial problems. The most popular forms of personal bankruptcy, Chapter 7 and Chapter 13, both have unique qualities that make them suitable in some cases, while inappropriate in others. This is why it is important to survey all available debt relief options in order to determine which route will best serve you and your loved ones.

Source: U.S. News & World Report, "5 Bankruptcy Myths Debunked," Susan Johnston, May 14, 2012

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Mark T. Young & Associates
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Hixson, TN 37343

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