To many, the only thing worse than living with overwhelming debt is the idea of having to file bankruptcy. Bankruptcy doesn’t have the best reputation – most people associate the process with financial ruin. However, while it is a significant financial decision, the truth is bankruptcy provides a fresh start to many individuals and families each year.
Bankruptcy isn’t right for everyone, but often myths and misinformation about filing can prevent people from seeking the financial relief they need. If you are considering filing for bankruptcy, here are the most common things people get wrong about the process:
Myth 1: People who file for bankruptcy are bad with money
One of the most harmful myths about filing for bankruptcy is that those who do it are financially irresponsible or live beyond their means. However, statistics paint a different picture. According to the American Bankruptcy Institute, a vast majority of bankruptcy are the result of issues outside of a person’s control, including:
- Losing a job
- Medical debt
- Divorce or separation
However, if you find yourself in crushing debt due to mishandling your money, you shouldn’t view bankruptcy as a personal failure. If anything, it indicates that you are ready to address your financial issues and get back on the right track.
Myth 2: Bankruptcy means losing everything
Many people wrongly associate bankruptcy with giving up their home, car or valuable possessions to eliminate their debts. The truth is, people have to give up their property in less than 5% of all bankruptcy cases. Most property and assets in a bankruptcy filing are exempt up to a specific value. Typically, exemptions include things like your home, vehicles, clothes, retirement savings and household goods, depending on your case.
Myth 3: Bankruptcy will ruin your credit for good
While it is true that you may encounter some hurdles regarding qualifying for new credit and raising your score, there are many ways to rebuild your credit after bankruptcy. Your bankruptcy will only remain on your credit report for seven to 10 years, depending on the chapter filed. Though you can expect some limitations, such as higher interest rates, you can use tools such as a secured credit card to restore your score in no time.
Bankruptcy may seem intimidating, but it allows many people to get their finances – and their lives – back on track. By separating fact from fiction, you can ensure you make the right choice for your financial future.