Over one million people file for bankruptcy in the U.S. every year. Bankruptcy can be a good option for many people to help them settle their debts and regain their financial freedom. While there are plenty of good reasons why a person would choose this option, there are many inaccurate myths surrounding bankruptcy that make it seem as though bankruptcy is a sign of financial irresponsibility or weakness. Below, we have identified and ironed out the facts behind four of these common myths.
Myth: Bankruptcy will permanently destroy your credit.
While bankruptcy will affect your credit score, it is only temporary. You will soon receive credit card offers in the mail after a filing. It is a good idea to take advantage of a secured credit card with a low limit and start making regular, on-time payments on your balance each month. After a year, switch to a regular credit card and continue regularly making payments. As long as your payments are not late, your credit score will begin to improve.
Myth: Those who file for bankruptcy are financially irresponsible.
For many Americans, this simply is not true. Many well-intentioned people suffer financial distress after personal problems like a costly divorce, a long-term illness leading to overwhelming medical bills, or losing one’s job. Even the most financially responsible people may have issues that can only be resolved by bankruptcy. Bankruptcy should be considered as a helpful step towards regaining your financial independence and not as a punishment.
Myth: Bankruptcy will eliminate all of my past debts.
Many people incorrectly assume that bankruptcy will completely wipe their financial slate clean, and that they won’t have to pay back any of the money that they owed. This is not always the case. Many debts, like spousal support, child support, restitution payments, and even student loan repayments will not be discharged by bankruptcy, and will still have to be repaid. If you have kept current with filing your taxes every year, you may be able to have these debts reduced or eliminated, but if not, you may be responsible for repayment of these debts as well.
Myth: I will lose everything I own if I file for bankruptcy.
This also is untrue. Over 95% of cases are “no asset” cases, meaning the debtor keeps everything they own. Exemptions provide for assets that the debtor can keep, and creditors and bankruptcy trustees cannot touch some assets, like pensions.
Bankruptcy isn’t meant to be a financial cure-all, but it can provide relief for many people who are looking to regain their financial freedom. If you are considering filing for bankruptcy, contact the Southern California bankruptcy lawyers at Wadhwani & Shanfeld. Both of our attorneys are board-certified bankruptcy specialists, and our team has handled over 10,000 cases in 65 years of collective practice.
For more information and to schedule your free consultation, please call our firm at (800) 996-9932.