What it means to file for bankruptcy is vastly misunderstood by a lot of people. Many who could benefit from a fresh financial start delay taking action far, far too long because of fear, shame or simple misinformation.
The truth is that bankruptcy exists to give honest people a way to get back on their feet after financial woes take over – not to punish them. Here are five of the most common myths about bankruptcy, along with the truth you need to know if you want to make an informed decision about your options:
1. “Filing bankruptcy means I’ve failed.”
This is one of the most damaging myths out there about bankruptcy because it keeps people stuck in debt for far too long. Debt is not a moral failing and bankruptcy is not a sign that you’ve given up – it’s a legal right. People file for bankruptcy every day because of job losses, medical emergencies, divorce or other circumstances beyond their control. Choosing bankruptcy can be a smart, responsible decision that protects your family and gives you a chance to rebuild.
2. “I’ll lose everything I own.”
Many people picture bankruptcy as something that will wipe out their entire life: their home, car, savings and even personal items. In reality, most people who file bankruptcy can keep most (if not all) of their property thanks to exemptions built into the process. These exemptions protect things like your primary vehicle, clothing, household goods, retirement accounts and – in many cases – even your home equity.
3. “Bankruptcy will ruin my credit forever.”
Bankruptcy will appear on your credit report for several years, but that doesn’t mean you won’t be able to get credit during that time. In fact, many clients see their credit score start to improve within months of filing because their debt-to-income ratio drops dramatically. Bankruptcy wipes out unmanageable debt, which can make you a more attractive borrower moving forward – and there’s an entire industry dedicated to helping people rebuild their credit through secured cards and starter loans.
4.“I can’t afford to file for bankruptcy.”
When you’re already struggling financially, the idea of paying for a lawyer can feel impossible. However, most bankruptcy attorneys offer payment plans or flat fees that make bankruptcy affordable. Plus, you may find it easier to afford the cost once you stop trying to pay the minimum due on a half dozen or more credit cards. Think of it this way: bankruptcy is an investment in your future financial health. The cost is often far less than what you’d pay trying to manage high-interest debt for years.
5. “Everyone will know I filed.”
While bankruptcy cases are public record, they are not announced in the local newspaper or shared on social media. Unless you’re a public figure or you choose to tell people, it’s unlikely that anyone outside of your creditors will ever know you filed. Someone would have to go looking for that information to find it.
If you’re struggling with debt, don’t let fear or misinformation hold you back. Bankruptcy is designed to give you a clean slate and a chance to regain control over your finances. Talking to an experienced bankruptcy attorney is the best way to understand your options.
