Making the decision to file for bankruptcy isn’t an easy one. You must think about what options you have for handling your debts. Before you decide if bankruptcy is the right thing for you to do, especially if one factor in your case is student loans, make sure you aren’t falling for these myths.
#1: Bankruptcy is only for irresponsible people who don’t want to pay back debts
Many people who file for bankruptcy do so because of things they can’t control. The vast majority of people who file have medical bills that are keeping them in a state of financial instability. Job loss or the inability to work for a period can contribute to needing to file bankruptcy.
#2: Bankruptcy can’t do anything about student loans
In most cases, bankruptcy can’t do anything about student loans. However, there are some cases in which bankruptcy can do away with student loans. This requires you to file additional forms and go through the process of proving that repaying the student loans would cause you an undue hardship. This is a difficult point to prove.
#3: You can’t do anything about student loans that you can’t pay
You have other options for dealing student loans that don’t involve filing bankruptcy. Deferments, forbearance, and forgiveness are three other options that you have. Reviewing how each of these impacts your student loans and your repayment plan is crucial.
#4: All bankruptcy cases are the same
Personal bankruptcy cases are either Chapter 7 or Chapter 13 filings. Chapter 7 bankruptcy has income and asset limits because a successful petition results in the discharge of qualified debts without repayment unless there are assets to sell to cover a portion of the debts. Chapter 13 bankruptcy requires you to repay some of the debts. You work with a bankruptcy trustee to come up with a repayment plan. Once you compete the plan, the court discharges any remaining debts.
#5: Bankruptcy doesn’t cost you anything
Bankruptcy filing isn’t free. In the case of a Chapter 7 bankruptcy, you must pay the applicable fees up front. You can have bankruptcy fees included in the payments you make if you file a Chapter 13 bankruptcy. Additionally, it is important to remember that filing for bankruptcy now and taking steps to get your finances under control are often worth the cost of filing.
#6: Entire accounts are discharged in a bankruptcy
You must be careful if you file bankruptcy and have accounts that have other account holders or co-signers. Any account holder or co-signer not listed on the bankruptcy filing would remain responsible for the debt, even if you are relieved of the responsibility. In the case of student loans, this could mean your parent or other co-signer has to pay the debt even if you are successful with your petition to have it discharged.