Learning about personal finance presents a myriad of pitfalls, most of them surrounding the question of who to trust. Between get-rich-quick schemes and people trying to sell you a payment payoff plan that may not have anything to do with your actual financial circumstances, it can be hard for a person with financial troubles to understand their options.
People who are considering bankruptcy are often confused and misled, leading to a lot of misconceptions about filing for bankruptcy.
1- Only Bad People File For Bankruptcy
There is a misconception in North America that prosperity means you are a good person and deserve to be wealthy. In fact, people believe that only irresponsible people file for bankruptcy. That simply isn’t true. Many people who file bankruptcy are driven there by an unexpected medical condition or other issue beyond their control, like a job loss during a recession.
2- Bankruptcy Ruins Your Credit Forever.
Bankruptcy will immediately impact your credit rating. However, if you have dozens of bad debts on your credit report, the bankruptcy filing may actually improve your chances of rebuilding your credit. Instead of several derogatory marks, you will have one, and many creditors understand bankruptcy law even better than consumers, so they may offer credit to help you rehabilitate your credit score.
3- People Who File For Bankruptcy Have Been Wasting Money
Entertainment media and some unscrupulous lenders have perpetuated the misconception that people file bankruptcy because they want to buy everything on credit and then escape from the payments.
4- People Who File For Bankruptcy Lose Everything
Many people have the misconception that when you file for bankruptcy you lose everything you own, including your home, your car, and your retirement accounts. That is not the case. Courts have ruled that running up your credit cards immediately before filing for bankruptcy is fraud and will usually refuse to dismiss those charges. In egregious cases, they may disallow the entire bankruptcy petition because of these actions.
When you file for bankruptcy, your attorneys can help you navigate the list of exemptions. In a personal bankruptcy, you may be able to renegotiate loans with very high interest rates into something manageable, so you can keep the things you need the most.
5- Bankruptcy Gives You a Clean Slate
This misconception is tied to the idea that you lose everything in bankruptcy. Depending on the type of bankruptcy and the terms of the court agreement, you may still have a mortgage, car payment, and other debts after filing for bankruptcy. Among the things that cannot bedischarged by bankruptcy are alimony and child support, student loans, and debts owed because of willful negligence, such as due to drunken driving.
6- Bankruptcy Filers Can Only File Once
While most people never want to file for bankruptcy more than once, it can happen. While there are laws regarding how often a person can file, there is no restriction regarding the number of times a person can file bankruptcy.
If you are considering filing for bankruptcy, take the time to educate yourself and talk to a professional regarding your options.
