Misunderstandings in our culture have led to many prevalent bankruptcy myths. Some mistakenly believe that if a person files for bankruptcy it must mean that they made poor choices with their money. This is not always true. Many file for bankruptcy because of medical bills, divorces and other problems that may be beyond their control. The truth is there are times when bankruptcy is actually the most sensible financial option. If you are in a position where you are considering filing, let’s start by dispelling some of the most common misunderstandings.
Common Bankruptcy Myths
- Filing for bankruptcy means losing everything: Some people think they have to give up many or even all of their possessions in a bankruptcy. In reality, most Chapter 7 cases are no-asset, which means that the debtor gives up no possessions. This is because bankruptcy laws will often allow you to keep certain possessions that are important to daily life, and many of your other belongings will be of no interest to creditors.
- Bankruptcy is a sign of failure: In 2009, more than half of bankruptcies were due to medical debt. Often bankruptcy is a sign of bad luck rather than poor money management. People have a tendency to blame the victim when it comes to debt. The truth is that bankruptcy is nothing to be ashamed about. Even if you think you have made mistakes, there is nothing wrong with moving towards a new start.
- Your financial future is doomed: While it is true that a bankruptcy will remain on your credit report for seven to ten years after you file, people’s credit actually improves after they finalize a bankruptcy. Equifax reported that the average person had a score of 538.2 when they filed, and an average of 620 after the process was complete. Besides, there are ways to rebuild your credit after a bankruptcy.
- It’s always better to pay your debts: Some people believe that bankruptcy is only a last resort option. While it’s true that filing is a major life decision, there are situations where it is wiser than paying down debts. If you owe 50 percent or more of your annual income to creditors, it might be time to file. Rather than assume bankruptcy would be disastrous, first try having a thorough discussion with an attorney.
Understanding the many misunderstandings around bankruptcy can be a key step at the beginning of the process. Once you understand the truth of things, it becomes easier to move forward with building your financial future. Getting the help of a skilled bankruptcy attorney will help you to navigate the complicated road out of debt and into freedom.
Julian, Crowder & Shuster, P.C., is a firm of Lewisville bankruptcy lawyers who fight to provide their clients with a fresh start.