Bankruptcy is a legal process that provides individuals with debt relief. Unfortunately, misinformation often prevents people from considering it as a viable option for improving their finances. Below are some common bankruptcy myths and the truth about them to help you make an informed decision.
4 Common Bankruptcy Misconceptions
1. You’ll Lose Everything You Own
While filing for Chapter 7 bankruptcy does involve liquidating your assets to repay your creditors and achieve debt relief, there are essential possessions that you may be able to claim as exempt.
Chapter 13 bankruptcy does not require you to give up any of your assets. Instead, your debt is reorganized, so you can repay what you owe over three to five years.
2. It Permanently Destroys Your Credit
It’s true that your credit score will be negatively affected immediately after you file for bankruptcy. The bankruptcy will also remain on your credit report for seven to ten years.
However, if you’re overwhelmed by debt and making late payments, your credit score is already taking a hit. In most cases, people who file for bankruptcy can open new lines of credit within a few months. They can then start to rebuild their credit by making timely payments, keeping a low debt-to-income ratio, and avoiding high finance charges and interest rates.
3. It Wipes Out All of Your Debt
In general, bankruptcy discharges unsecured debts such as credit card bills, medical expenses, personal loans, and utility costs. But there are some debts that neither Chapter 7 or Chapter 13 can erase. These include mortgage loans, most back taxes, alimony, child support payments, and student loans.
4. Paying Off Your Debts Is Always the Best Option
While bankruptcy is not something to take lightly, it is sometimes the best method for achieving debt relief and improving your financial future. If your debts make up more than half of your yearly income and you’re always struggling to pay them off, filing for bankruptcy may be the most realistic option. A bankruptcy attorney can assess your situation and let you know if it’s a smart choice.
To learn if filing for bankruptcy is your best option, contact Greg Dunn, Bankruptcy and Debt Relief Attorney in Honolulu, HI. Since opening his practice in 1996, this seasoned attorney has closed more than 12,000 bankruptcy cases and helped countless Honolulu residents become debt-free. Visit his website to learn more about his services, and call (808) 524-4529 to schedule a consultation today.