4 Myths and Misconceptions About Bankruptcy in the United States

Nearly everyone has debts, and while some may be able to manage these issues successfully, others may have experienced significant financial difficulties that have affected their ability to repay what is owed while also addressing their ongoing living expenses. People in this situation may be regularly receiving calls or letters from creditors, and they may be worried that they could lose their home or other property, face lawsuits, or have their bank accounts seized or their wages garnished. Unfortunately, many people are hesitant to consider bankruptcy in these cases due to some common misconceptions about this form of debt relief. By understanding when bankruptcy may be used and the processes that are followed, a debtor can determine whether this option is right for them.

Busting Bankruptcy Myths

Some common misconceptions about bankruptcy include:

• Myth: Bankruptcy is mostly used by people who have been irresponsible with money - There are a multitude of reasons why people experience overwhelming debt, and in many cases, these situations occur unexpectedly with little or no chance to prepare. In fact, the majority of bankruptcy cases involve medical debt. Even if a person has insurance, a serious illness or major injury can result in massive medical bills that a family may have no chance of paying. An unexpected layoff or other issues that affect a person’s income can also lead to significant financial difficulties, making it hard for a family to pay bills. Everyone has the right to file for bankruptcy and receive relief from their debts, and there should be no shame in seeking out help when a family struggles with financial problems.

• Myth: Bankruptcy will permanently destroy your credit and make it impossible to receive loans or credit cards - While it is true that bankruptcy will lower your credit score and appear on your credit report, this will only be a temporary issue. If you are struggling with debts, you will likely see your credit score decrease due to missed payments and other financial issues, regardless of whether you decide to file for bankruptcy. By receiving debt relief through bankruptcy, you can avoid further penalties to your credit score and begin rebuilding your credit.

• Myth: You cannot file for bankruptcy if you earn too much income or own too many assets - Bankruptcy is available to everyone, regardless of their income or financial resources. If you are planning to pursue a Chapter 7 bankruptcy, you will need to pass a means test to determine whether you have enough disposable income to repay your debts. However, even if you do not pass the means test, you can pursue a Chapter 13 bankruptcy that will allow you to consolidate your debts into a single payment plan and eliminate your remaining debts after making regular payments over a period of three to five years. 

• Myth: You will lose your home or other property if you file for bankruptcy - Depending on the type of bankruptcy you pursue, you may or may not be required to turn over some of your assets. In a Chapter 7 bankruptcy, a number of exemptions will apply, and you will likely be able to keep most or all of your assets. In a Chapter 13 bankruptcy, you will generally not be required to turn over any assets. If you are facing foreclosure, bankruptcy may allow you to become current on your payments and avoid the loss of your home.

Contact a United States Bankruptcy Attorney

Even though there are many misconceptions about bankruptcy, the truth is that this form of debt relief can often be the best option for families who are struggling financially. If you need to address significant debts, a skilled U.S. bankruptcy lawyer can help you understand whether filing for bankruptcy is the best choice for you, and they can make sure you complete the requirements to have your debts eliminated.

Sources:

https://www.abi.org/feed-item/the-top-9-bankruptcy-myths

https://money.usnews.com/credit-cards/articles/bankruptcy-myths-debunked

https://www.investopedia.com/financial-edge/0310/top-5-reasons-people-go-bankrupt.aspx