Are you struggling to make ends meet because of debt? You might be looking through your possessions and assets, determining what you could sell to help pay your bills. Creditors might be calling you every day, hounding you for payments. You might have taken on a second job, but serious consequences like foreclosure or repossession still loom on the horizon.
Despite this financial hardship, you might believe bankruptcy is too drastic. This might be because bankruptcy has countless negative stereotypes. But the truth is that, every year, hundreds of thousands of individuals and businesses file bankruptcy to obtain a fresh start. To help you understand how bankruptcy could be the solution you need, we have compiled the top 6 myths about bankruptcy—and why they’re wrong.
Myth #1: Bankruptcy will ruin your credit forever.
Bankruptcy can damage your credit, but the information doesn’t stay on your report permanently. Chapter 7 bankruptcy will stay on your report for 10 years, and Chapter 13 bankruptcy will stay for 7 years.
Furthermore, the effects of bankruptcy will diminish even before the case is removed from your report. So, while you may have trouble obtaining loans at low interest rates in the first few years after your case, you will have much better luck later on—especially if you keep a clean record and make all your payments on time.
Many people file bankruptcy after struggling with debt for years. In this case, bankruptcy can actually improve a filer’s credit score because it substantially improves their overall credit use (i.e. what they’ve charged vs. what’s available).
Myth #2: Bankruptcy is for irresponsible and immoral people.
The U.S. Bankruptcy Code was designed to give the “honest debtor” a new beginning. Even the Bible calls for a complete elimination of debt every seven years.
Bankruptcy is not dishonest or irresponsible—it is a necessary form of relief that has existed for hundreds of years. No matter how hardworking or diligent a person may be, circumstances beyond their control can cause severe financial hardship in an instant. If debt is preventing you from building the life you deserve, bankruptcy is something to seriously consider.
Myth #3: You will lose everything you own if you file bankruptcy.
Generally, losing property and other possessions is only a possibility in Chapter 7 bankruptcy. Even then, you can protect much of what you own through state or federal exemption laws. Some of these laws are quite generous.
Many people, in fact, use bankruptcy specifically to protect their assets. For example, let’s say you own a home and vehicle that are in danger of foreclosure and repossession. Chapter 13 bankruptcy would reorganize your debt into a 3-5-year repayment plan, and, because of the automatic stay, your creditors and lenders cannot seize your assets or otherwise attempt to collect your debt until the end of that plan. If you can catch up on arrears by the end of the 3-5 years, you can more than likely rescue your home and vehicle.
Myth #4: Bankruptcy won’t stop debt collectors from coming after you.
Unless you filed another bankruptcy within the year, your petition will trigger an automatic stay that lasts until the end of your case (e.g. 3-6 months for Chapter 7 or 3-5 years for Chapter 13).
The automatic stay is a court order directing all debt collectors to stop collection activities, including:
- Phone calls
- Wage garnishment
- Bank levies
During your bankruptcy, therefore, you are safe from all collection attempts (with very limited exceptions). The automatic stay will cover any debt you listed in your petition.
Once your bankruptcy is complete, you may continue to enjoy freedom from debt collectors. This ultimately depends on whether the court discharges your debt, and whether you caught up on arrears for reaffirmed debt, if applicable.
Myth #5: You won’t be able to keep your job or get a new one if you file bankruptcy.
Whether your employer is the federal government or a private company, firing you for filing bankruptcy is illegal. You may have slightly more trouble finding a new job with a private employer (especially if your prospective position involves handling money), but bankruptcy is not an automatic bar against employment.
Myth #6: It’s better to just keep paying your debt.
Everyone’s situation is different, but many people can benefit substantially from bankruptcy—even if they can technically afford their monthly payments. Overwhelming debt keeps you from building savings, investing, preparing for the future, and much more. Bankruptcy can help you accomplish these goals by readjusting expectations and eliminating what you cannot pay in a reasonable amount of time.
Bring Your Concerns to Our Experienced Team
Whether bankruptcy is right for you can only be determined by a qualified professional. Bankruptcy is a complex process, containing multiple paths that may affect each filer differently. When filed properly, however, it can provide immense relief from overwhelming financial hardship. Our attorney at Lam Law Firm is ready to help you understand the truth about bankruptcy and how it may position you to build the future you deserve.