Bankruptcy Myths
Bankruptcy Myths
Dispelling Bankruptcy Myths: Know Your Options and Rights
There is a great deal of false information circulation about filing for bankruptcy. Many of these "myths" are intended to prevent or scare consumers away from filing. Creditors do not want you to file because they may lose potential interest, fines, and fee. In many instances these additional payments are being unfairly or unethically collected in the first place.
The economy depends on a growing market where consumers are expected to spend-often beyond their means. Even when average consumers stay within their budget, unexpected events such as a divorce, illness, or job loss renders many consumers unable to keep up with monthly bills. Bankruptcy protections exist to protect the rights of consumers while also maintaining the growth of the economy.
Before rejecting bankruptcy as an option or pursuing it blindly, it is important to understand these myths and the actual consequences of filing. Common myths include the following:
Myth 1: The New "Means Test" Prohibits the Average Consumer From Filing Bankruptcy.
The new "means test" is commonly misunderstood as an obstacle to bankruptcy. The truth is that in most situations, you will still qualify for bankruptcy. Even if you do not qualify for Chapter 7, you can probably still file for Chapter 13. We have seen consumers with six-figure incomes quality under the means test due to extensive debt and large monthly expenses.
Myth 2: People Who File Bankruptcy Are Just "Taking the Easy Way Out"
While bankruptcy could certainly affect your credit score and should not be considered as your first option, anyone considering filing should not be dissuaded by any stigma attached to filing bankruptcy. Past social stigma associated with bankruptcy simply do not exist anymore. The government created bankruptcy protection as a "safety valve" for consumers because the market does not. Where credit card companies push you to buy and lenders may convince you to overextend yourself, the government offers a solution when you get behind. For most people, bankruptcy is the last option and is considered only after many attempts to get back on track have failed. Given the recent downturn in the economy, millions of Americans are seriously considering bankruptcy protection for the first time. Without bankruptcy, people would simply get deeper and deeper into debt, which is no help to the individual or the market.
Myth 3: I Won't Be Able to Get Credit After Filing Bankruptcy
In this economy, it is difficult for anyone to get credit; banks are simply not able to lend as much money as before. It can be even more difficult to get credit if you have significant outstanding bills or a home in foreclosure. People who have filed bankruptcy are actually a good credit risk because they cannot file again for 8 years. Generally, they will have a cleaner credit history after the bankruptcy than before, though. While you may not get the best rates immediately after filing, you will have options. Millions of Americans have filed bankruptcy - and lenders do not want to forfeit every potential customer who has filed bankruptcy.
Myth 4: Bankruptcy Is A Personal Failure
Many people are hesitant to file bankruptcy because they think that filing somehow indicates a personal failure. Again, bankruptcy is a common solution for consumers who have been affected by a downturn in the economy, including suffering job loss, layoff or reduction in working hours. Most events affecting your financial security are unforeseeable. When debt becomes unmanageable, sometimes bankruptcy is the only option to get back on track.
Myth 5: I Will Lose Equity in My Home or Lose My Retirement Funds to Bankruptcy.
You should know that if you file bankruptcy, you do not have to take equity out of your home or liquidate your 401(k) to pay off debts. There are exemptions for homes and other assets, including retirement accounts that are out of reach for creditors.
If you are considering bankruptcy, it is important to consult with an experienced attorney who can help you explore your options. Understanding the truth about bankruptcy and its actual consequences may come as a relief. You do have rights and the potential to achieve financial independence through bankruptcy.
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