There are countless harmful misconceptions about bankruptcy that prevent people from seeking relief. While it’s true that bankruptcy is a big decision that shouldn’t be taken lightly, for many, it provides the fresh start they need to get their lives back on track.
If you are considering filing for bankruptcy to overcome debt, here are some of the most common falsehoods around the process and the truths behind them:
Myth 1: You’ll lose everything
Perhaps the most common misconception about bankruptcy is it means surrendering your treasured belongings. Fortunately, this generally isn’t the case. People only give up property in less than 5% of bankruptcy cases. If you file for Chapter 13 bankruptcy, or reorganization bankruptcy, you’ll hang on to all of your belongings as you pay off all or a portion of your debts over time.
In Chapter 7 bankruptcy, you’ll likely get to keep your essential assets up to a specific value, such as your home, car or household goods. These assets are known as exemptions. While exempt assets will depend on your unique circumstances, your necessities should be safe.
Myth 2: Bankruptcy will ruin your financial future
Your credit will indeed take a hit after filing for bankruptcy. A bankruptcy will remain on your credit report for seven to 10 years, and you will likely have limited access to credit and be required to pay higher interest rates. Fortunately, it’s not a permanent situation.
In as little as two years after filing, most people find their credit score increases to the “good” or “excellent” range. There are many simple ways to rebuild your credit after bankruptcy, such as applying for a secured credit card.
Myth 3: Filing for bankruptcy is a personal failing
Over the last decade, studies have shown that a majority of bankruptcy cases are the result of issues outside of your control, such as losing a job, getting divorced or insurmountable medical debt. But even if that isn’t the case for you, bankruptcy is not a personal failing.
Bankruptcy is a tool to help you overcome debt and get back on your feet. Taking the initiative to fix your past financial missteps is worthy of great dignity and respect.
The bottom line
Filing for bankruptcy may come with some temporary setbacks, but don’t let misconceptions prevent you from seeking financial relief. Bankruptcy can eliminate your debt in months as opposed to years of struggling to pay it off.