It’s no question that filing for bankruptcy can be a stressful time in a person’s life. However, there are many misconceptions that may permeate your mind when it comes to bankruptcy which makes it seem scarier than it really is.
Myth #1: You’ll lose all your possessions, including your home
Many people fear bankruptcy because they’re afraid they’ll lose all their valuable possessions, including their houses. While it’s true that you may need to liquidate some of your assets to pay off your debts, it isn’t a guarantee that you have to give up everything, let alone your house.
It also depends on what type of bankruptcy you file for. Chapter 13 generally allows people to keep their homes as long as they follow through with the designated repayment plan. In Chapter 7, you can declare your home as exempt. That means that it will not be included in the assets marked for liquidation.
Myth #2: Bankruptcy will permanently affect your credit score
There’s no sugar-coating it — your credit score will take a hit after filing for bankruptcy. This can make it difficult to take out loans or apply for new credit cards. However, rebuilding your credit score is entirely possible after bankruptcy. And although it can take upwards of 10 years to get back to where you used to be, there are steps you can take immediately after filing for bankruptcy that will help you restore your credit.
Myth #3: Filing bankruptcy means you failed
It’s easy to feel disheartened and hopeless when you realize that bankruptcy may be the only option. But filing for bankruptcy does not mean you have failed in any way. In fact, there are several factors outside of your control that might require bankruptcy, including an increase in medical bills or a sudden job loss.
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In reality, bankruptcy is an opportunity to embark on a fresh financial start. It isn’t a scheme or ploy to punish people with outstanding debts. By debunking these common bankruptcy myths, you can hopefully overcome any worries you have and decide if bankruptcy is right for you.