Bankruptcy is a legal process that people can go through when they face overwhelming debt. It can help people get back on track with their finances and look forward to the future again.
However, bankruptcy is somewhat stigmatized and this is largely due to misconceptions. What are some of the most common misconceptions surrounding bankruptcy?
Myth #1: Bankruptcy leaves you with nothing
People in debt sometimes feel afraid to consider bankruptcy because they’ll lose everything. Nonetheless, this isn’t the case. Many assets are considered exempt. This will largely depend on specific circumstances and state and federal laws, but home residences and vehicles are typically exempt.
Myth #2: Only reckless spenders go bankrupt
While reckless spending can certainly lead to debt, it is incorrect to say that all bankruptcy filers are irresponsible. The truth is that financial issues often arise through no fault of the debtor. For example, many filers face huge medical debts or may have just lost their jobs.
A person cannot control health-related issues, the employment market or the economy.
Myth #3: Bankruptcy ruins credit for good
While debts and bankruptcy are closely tied to credit scores, it’s important to be armed with all the information. Being in debt and facing bankruptcy can indeed lower your credit score, but this doesn’t have to last forever. In fact, upon filing for bankruptcy and regaining control of your finances, your credit score can begin to increase within a matter of months.
Bankruptcy is not something that should be rushed into. Whether or not it’s the right decision for you will depend on your own unique situation. Seeking legal guidance will help you to take the correct approach.