Bankruptcy is a legal process designed to help people eliminate debt when they cannot repay their creditors. This can help filers get a fresh start with their finances.
Every year, many people file bankruptcy due to job loss, medical debt, divorce and other reasons. Although common, many myths surround the bankruptcy process and how it works.
Bankruptcy permanently ruins your credit
One myth about bankruptcy is that it ruins your credit forever. While the bankruptcy process does have a negative impact on your credit score, it is not permanent. With responsible financial management and timely payments, you can rebuild your credit over time and work towards a brighter financial future.
You lose everything in bankruptcy
Another common myth is that you will lose everything you own if you file for bankruptcy. In reality, bankruptcy laws provide exemptions that protect certain assets, such as your home, car, retirement accounts and personal belongings.
Bankruptcy is a sign of failure
Many people believe that filing for bankruptcy is a sign of personal or financial failure. However, bankruptcy is a legal tool designed to provide people with a fresh start when they are overwhelmed by debt.
Bankruptcy erases all debts
Some people believe that bankruptcy erases all debts, regardless of the type. While bankruptcy can discharge many types of unsecured debts, such as credit card debt, medical bills and personal loans, certain debts, such as student loans, child support and taxes, are generally not dischargeable in bankruptcy.
Since bankruptcy has many legal and financial implications, those struggling with their finances should carefully approach this option. Before moving forward, filers should consider if bankruptcy is the right approach for managing their debt.
